nformation for two alternative projects involving machinery investments follows. Project 1 requires an initial investm Project 2 requires an initial investment of $98,000. Assume the company requires a 10% rate of return on its invest of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Project 1 $ 100,000 65,000 20,000 Project 2 $ 80,000 32,000 18,000
nformation for two alternative projects involving machinery investments follows. Project 1 requires an initial investm Project 2 requires an initial investment of $98,000. Assume the company requires a 10% rate of return on its invest of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Project 1 $ 100,000 65,000 20,000 Project 2 $ 80,000 32,000 18,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Dinesh bhai
Transcribed Image Text:Exercise 26-14 (Static) Net present value of an annuity LO P3
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)
Note: 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
Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2.
Note: 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 1
Net present value
Years 1-5
Project 2
Net present value
Present Value
Net Cash Flows x of Annuity at
10%
$
7,000 x
Net Cash Flows X
$
10,000 x
Present Value
of Annuity at
10%
=
=
Project 1 Project 2
$ 100,000
$ 80,000
=
65,000
20,000
8,000
$ 7,000
Present Value of
Net Cash Flows
$
0
Present Value of
Net Cash Flows
$
32,000
18,000
20,000
$ 10,000
0
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