Project 1 requires an original investment of $84,200. The project will yield cash flows of $19,000 per year for seven years. Project 2 has a calculated net present value of $18,000 over a five-year life. Project 1 could be sold at the end of five years for a price of $81,000. 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 6% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.797 0.756 0.694 0.826 0.579 0.840 0.751 0.712 0.658 0.792 0.683 0.636 0.572 0.482 0.567 0.621 0.402 0.747 0.497 0.705 0.564 0.507 0.335 0.432 0.665 0.513 0.452 0.376 0.279 0.233 8. 0.627 0.467 0.404 0.327 0.424 0.361 9. 0.592 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 10% 12% 15% 20% 1. Present Value of an Annuity of $1 at Compound Interest 10% 15% Year 6% 12% 20% 0.943 0.909 0.893 0.833 0.870 1.833 1.736 1.690 1.626 1.528 2.402 2.106 2.673 2.487 2.283 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.352 2.991 3.605 4.917 4.355 4.111 3.784 3.326 5.582 4.868 4.564 4.160 3.605 4.968 6.210 5.335 4.487 3.837 6.802 4.031 5.759 5.328 4.772 7.360 5.019 10 6.145 5.650 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 15%. If required, round to the nearest dollar. b. Which project provides the greatest net present value? 3.
Project 1 requires an original investment of $84,200. The project will yield cash flows of $19,000 per year for seven years. Project 2 has a calculated net present value of $18,000 over a five-year life. Project 1 could be sold at the end of five years for a price of $81,000. 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 6% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.797 0.756 0.694 0.826 0.579 0.840 0.751 0.712 0.658 0.792 0.683 0.636 0.572 0.482 0.567 0.621 0.402 0.747 0.497 0.705 0.564 0.507 0.335 0.432 0.665 0.513 0.452 0.376 0.279 0.233 8. 0.627 0.467 0.404 0.327 0.424 0.361 9. 0.592 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 10% 12% 15% 20% 1. Present Value of an Annuity of $1 at Compound Interest 10% 15% Year 6% 12% 20% 0.943 0.909 0.893 0.833 0.870 1.833 1.736 1.690 1.626 1.528 2.402 2.106 2.673 2.487 2.283 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.352 2.991 3.605 4.917 4.355 4.111 3.784 3.326 5.582 4.868 4.564 4.160 3.605 4.968 6.210 5.335 4.487 3.837 6.802 4.031 5.759 5.328 4.772 7.360 5.019 10 6.145 5.650 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 15%. If required, round to the nearest dollar. b. Which project provides the greatest net present value? 3.
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:Project 1 requires an original investment of $84,200. The project will yield cash flows of $19,000 per year for seven years. Project 2 has a
calculated net present value of $18,000 over a five-year life. Project 1 could be sold at the end of five years for a price of $81,000.
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
6%
12%
15%
20%
0.943
0.909
0.893
0.870
0.833
0.890
0.797
0.756
0.694
0.826
0.579
0.840
0.751
0.712
0.658
0.792
0.683
0.636
0.572
0.482
0.567
0.621
0.402
0.747
0.497
0.705
0.564
0.507
0.335
0.432
0.665
0.513
0.452
0.376
0.279
0.233
8.
0.627
0.467
0.404
0.327
0.424
0.361
9.
0.592
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
10%
12%
15%
20%
1.
Transcribed Image Text:Present Value of an Annuity of $1 at Compound Interest
10%
15%
Year
6%
12%
20%
0.943
0.909
0.893
0.833
0.870
1.833
1.736
1.690
1.626
1.528
2.402
2.106
2.673
2.487
2.283
3.465
3.170
3.037
2.855
2.589
4.212
3.791
3.352
2.991
3.605
4.917
4.355
4.111
3.784
3.326
5.582
4.868
4.564
4.160
3.605
4.968
6.210
5.335
4.487
3.837
6.802
4.031
5.759
5.328
4.772
7.360
5.019
10
6.145
5.650
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 15%. If
required, round to the nearest dollar.
b. Which project provides the greatest net present value?
3.
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