Project 1 requires an original investment of $69,900. The project will yield cas
ID: 2398874 • Letter: P
Question
Project 1 requires an original investment of $69,900. The project will yield cash flows of $12,000 per year for seven years. Project 2 has a calculated net present value of $12,700 over a five-year life. Project 1 could be sold at the end of five years for a price of $45,000.
Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.
a. Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar.
$
b. Which project provides the greatest net present value?
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Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162Explanation / Answer
Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar.
b. Which project provides the greatest net present value?
Project 1 becuase NPV is Higher
Period Cash Flow PV factor PV 0 -69900 1 -69900 1 12000 0.943 11316 2 12000 0.89 10680 3 12000 0.84 10080 4 12000 0.792 9504 5 57000 0.747 42579 NPV 14259Related Questions
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