3 10,000 Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net present values should be Indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar)
3 10,000 Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net present values should be Indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $135,000.
Project 2 requires an initial investment of $98,000. Assume the company requires a 10% rate of return on its investments. (PV of $1. FV
of $1, PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Annual Amounts
Sales of new product
Expenses
Materials, labor, and overhead (except depreciation)
Depreciation-Machinery
Selling, general, and administrative expenses
Income
Years 1-7
Project 1
Net present value
Years 1-5
Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net present
values should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest
whole dollar.)
Project 2
Net present value
Net Cash Flows
Net Cash Flows
X
x
Present Value
of Annuity at
10%
Project 1
$ 100,000
Present Value
of Annuity at
10%
65,000
20,000
8,000
$ 7,099
Present Value of
Net Cash Flows
Project 2
$ 80,000
Present Value of
Net Cash Flows
32,898
18,090
29,898
$ 10,000
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