Could someone figure this out and show me the steps?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Could someone figure this out and show me the steps?
Transcribed Image Text:Project 1 requires an original investment of $87,000. The project will yield cash flows of $21,000 per year for five years. Project 2 has a computed net present value of $19,800 over a three-year life. Project 1 could be sold at the end of three years for a price of $82,000.
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
0.890
0.826
0.797
0.756
0.694
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
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
3.353
2.991
6
4.917
4.355
4.111
3.785
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 three-year life, with residual value, assuming a minimum rate of return of 12%. If required, round to the nearest dollar.
b. Which project provides the greatest net present value?
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