Project A requires an original investment of $65,000. Theproject will yeild cash flows of $15,000 per year for seven years.Project B has a calculated net present value of $5,500 over a fiveyear life. Project a could be sold at the end of five years for aprice of $30,000.
Using the proper table below determine the net present value ofProject A over a five-year life salvage value assuming a minimumrate of return of 12%. Which is project provides the greatest netpresent value? Please show calculations
Project A requires an original investment of $65,000. Theproject will yeild cash flows of $15,000 per year for seven years.Project B has a calculated net present value of $5,500 over a fiveyear life. Project a could be sold at the end of five years for aprice of $30,000.
Using the proper table below determine the net present value ofProject A over a five-year life salvage value assuming a minimumrate of return of 12%. Which is project provides the greatest netpresent value? Please show calculations
Related questions
APPLY THE CONCEPTS: Net present value
Project A
This project requires an initial investment of $194,400. Theproject will have a life of 4 years. Annual revenues associatedwith the project will be $75,000 and expenses associated with theproject will be $15,000 for an annual net cash flow of $.
Note: Enter cash flows as positive numbers.
| Cash Flows | ||
| Year 0 | -$194,400 | |
| Year 1 | ||
| Year 2 | ||
| Year 3 | ||
| Year 4 | ||
Project B
This project requires an initial investment of $220,155. Theproject will have a life of 4 years. Annual revenues associatedwith the project will be $80,000, and expenses associated with theproject will be $15,000, for an annual net cash flow of $.
| Cash Flows | ||
| Year 0 | -$220,155 | |
| Year 1 | ||
| Year 2 | ||
| Year 3 | ||
| Year 4 | ||
The cost of capital for the company is 8%.
Present Value Tables
Present Value of $1 (a single sum) at Compound Interest.
Present Value of an Annuity of $1 at Compound Interest.
Use the minus sign to indicate a negative NPV. If an amount iszero, enter"0".
| Project A NPV Analysis | |||||||||
| Year | Cash Flow | Discount Factor | Present Value | ||||||
| 0 | $194,400 | 1.000 | $194,400 | ||||||
| 1â4 | 60,000 | select3.3120.7353.037Correct 11 of Item 4 | |||||||
| NPV | $ | ||||||||
| Project B NPV Analysis | |||||||||
| Year | Cash Flow | Discount Factor | Present Value | ||||||
| 0 | $220,155 | 1.000 | $220,155 | ||||||
| 1â4 | 65,000 | select3.3120.7353.037Correct 14 of Item 4 | |||||||
| NPV | $ | ||||||||
Based upon net present value, which project has the morefavorable profit prospects?
selectProject AProject BEither projectCorrect 17 of Item 4
Hide FeedbackShow All Feedback
Check My Work Feedback
Post Submission Feedback
Solution
APPLY THE CONCEPTS: Internal rate of return
Calculate the internal rate of return for Project A and ProjectB (defined previously). Enter the IRR with the percent sign (i.e.4%).
Project A: IRR Analysis
With an initial investment of $194,400 and annual cash flows of$, the internal rate of return for Project A is .
Project B: IRR Analysis
With an intial investment of $220,155 and annual cash flows of$, the internal rate of return for Project B is .
Hide FeedbackShow All Feedback
Check My Work Feedback
Post Submission Feedback
Solution
Hide FeedbackShow All Feedback
Check My Work Feedback
Post Submission Feedback
Solution
Basic Calculatorclose
0
UseEntBSBSpCEHomCEnd
789+
456-
123*
0.=/
Net Present ValueâUnequal Lives
Project 1 requires an original investment of $55,300. The project will yield cash flows of $12,000 per year for eight years. Project 2 has a calculated net present value of $12,400 over a six-year life. Project 1 could be sold at the end of six years for a price of $53,000.
Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.
| 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 | 0.162 |
| Present Value of an Annuity of $1 at Compound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.352 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.784 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
a. Determine the net present value of Project 1 over a six-year life with residual value, assuming a minimum rate of return of 15%. If required, round to the nearest dollar.
$
b. Which project provides the greatest net present value?
SelectProject 1Project 2
