Question

1. Net Present Value—Unequal Lives

   Project 1 requires an original investment of $46,100. The project will yield cash flows of $10,000 per year for seven years. Project 2 has a calculated net present value of $10,000 over a five-year life. Project 1 could be sold at the end of five years for a price of $47,000.

   Use the Present Value of $1 at Compound Interest and the The sum of the present values of a series of equal cash flows to be received at fixed intervals.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 five-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?
   

   • Project 1
   • Project 2

Answer 1

a)	Net Present Value - Project A
	Discount Rate		15%
	Year	Particular	Cashflow	Discounting Factor @6%	Discounted Cash Flow
	a	b	c	d	e=d*c
	0	Initial Cost Of Equipment +WC	$     -46,100	1.000	$                     -46,100.00
	1	Annual Cash Inflows	$       10,000	0.870	$                         8,695.65
	2	Annual Cash Inflows	$       10,000	0.756	$                         7,561.44
	3	Annual Cash Inflows	$       10,000	0.658	$                         6,575.16
	4	Annual Cash Inflows	$       10,000	0.572	$                         5,717.53
	5	Annual Cash Inflows	$       10,000	0.497	$                         4,971.77
	5	Sale Value	$       47,000	0.497	$                       23,367.31
		NPV			$                       10,788.86
	Therefore Net Present Value Of Project		$       10,789
b)	Projcet B Net Present Value = $10000
	Therefore project A have the greatest present value.