Question

Project A requires an original investment of $53,800. The project will yield cash flows of $15,600 per year for 4 years. Project B has a computed net present value of $4,050 over a 4-year life. Project A could be sold at the end of 4 years for a price of $15,500.

Following is a table for the present value of $1 at compound interest:

Year		6%		10%		12%
1		0.943		0.909		0.893
2		0.890		0.826		0.797
3		0.840		0.751		0.712
4		0.792		0.683		0.636
5		0.747		0.621		0.567

Following is a table for the present value of an annuity of $1 at compound interest:

Year		6%		10%		12%
1		0.943		0.909		0.893
2		1.833		1.736		1.690
3		2.673		2.487		2.402
4		3.465		3.170		3.037
5		4.212		3.791		3.605

Use the tables above.

a. Determine the net present value of Project A over a 4-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal places.
$

b. Which project provides the greatest net present value?

Answer 1

Amuont $ 15,600 $ 15,500 Factor 3.0370 $ 0.6360 $ Present value 47,377.20 9,858.00 Operating cash flows Add: Salvage value Less: Initial investment $ 53,800.00 Net present value - Project A $ 3,435.20 Project B has greatest NPV

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