Project 1 requires an original investment of $55,900. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $11,700 over a five-year life. Project 1 could be sold at the end of five years for a price of $44,000. 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 10% 12% 15% 0.909 0.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.386 0.322 Year 1 2 3 4 5 6 7 8 9 10 3 4 5 6 7 6% 0.943 0.890 0.840 0.792 0.747 0.705 Present Value of an Annuity of $1 at Compound Interest Year 6% 12% 15% 20% 1 0.943 0.893 0.833 0.870 2 1.833 1.690 1.626 1.528 2.673 2.402 2.283 2.106 3.465 3.037 2.855 2.589 4.212 3.605 3.353 2.991 4.917 4.111 3.785 3.326 5.582 4.564 4.160 3.605 6.210 4.968 4.487 3.837 5.328 4.772 4.031 6.802 7.360 5.650 5.019 4.192 8 9 10 0.665 0.627 0.592 0.558 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 a. Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar.
Project 1 requires an original investment of $55,900. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $11,700 over a five-year life. Project 1 could be sold at the end of five years for a price of $44,000. 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 10% 12% 15% 0.909 0.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.386 0.322 Year 1 2 3 4 5 6 7 8 9 10 3 4 5 6 7 6% 0.943 0.890 0.840 0.792 0.747 0.705 Present Value of an Annuity of $1 at Compound Interest Year 6% 12% 15% 20% 1 0.943 0.893 0.833 0.870 2 1.833 1.690 1.626 1.528 2.673 2.402 2.283 2.106 3.465 3.037 2.855 2.589 4.212 3.605 3.353 2.991 4.917 4.111 3.785 3.326 5.582 4.564 4.160 3.605 6.210 4.968 4.487 3.837 5.328 4.772 4.031 6.802 7.360 5.650 5.019 4.192 8 9 10 0.665 0.627 0.592 0.558 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 a. Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Net Present Value-Unequal Lives
Project 1 requires an original investment of $55,900. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $11,700 over a five-year life. Project 1 could be sold at the end
of five years for a price of $44,000.
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
10%
Year
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.943
0.909
0.870
0.833
1.833
1.736
1.626
1.528
2.673
2.487
2.283
3.465
3.170
2.855
4.212
3.791
3.353
4.917
4.355
3.785
5.582
4.868
4.160
6.210
5.335
4.487
6.802
4.772
5.759
6.145
7.360
5.019
8
9
10
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
2.106
2.589
2.991
3.326
3.605
3.837
4.031
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 10%. If required, round to the nearest dollar.
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