One of the projects should be accepted.
The two projects are mutually exclusive. That means only one of them can be accepted.
Although the total of Project Y's cash inflows is greater than the total of Project X's cash inflows, Project X is not necessarily the project that will increase shareholder value the most. In order to determine which project has the higher NPV, it is necessary to discount the future expected cash flows for both projects and subtract the amount of the initial investment from each. The result is the NPV. Doing that properly will result in a different answer from this one.
The NPV of Project X, discounting the cash flows using the PV of annuity factor for 5 years at 10% is: $47,000 × 3.791 $178,177 $(150,000) × 1.000 (150,000 ) NPV $ 28,177 The NPV of Project Y, discounting the cash flow using the PV of $1 factor for 5 years at 10% is: $280,000 × 0.621 $173,880 $(150,000) × 1.000 (150,000 ) NPV $ 23,880 Since the two projects are mutually exclusive, only one of them can be accepted. The one that should be accepted is the one with the higher NPV, and that is Project X.
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