Project A requires an original investment of $57,100. The project will yield cash flows of $16,800 per year for 4 years. Project B has a computed net present value of $2,750 over a 4-year life. Project A could be sold at the end of 4 years for $14,200. Following is a table for the present value of $1 at compound interest: Year 6% 10% 12% 0.943 0.909 0.893 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567 Following is a table for the present value of an annuity of $1 at compound interest: Year 6% 10% 12% < 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 Use the tables above. a. Determine the net present value of Project A over a 4-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal places. b. Which project provides the greatest net present value? ?
Project A requires an original investment of $57,100. The project will yield cash flows of $16,800 per year for 4 years. Project B has a computed net present value of $2,750 over a 4-year life. Project A could be sold at the end of 4 years for $14,200. Following is a table for the present value of $1 at compound interest: Year 6% 10% 12% 0.943 0.909 0.893 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567 Following is a table for the present value of an annuity of $1 at compound interest: Year 6% 10% 12% < 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 Use the tables above. a. Determine the net present value of Project A over a 4-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal places. b. Which project provides the greatest net present value? ?
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 A requires an original investment of $57,100. The project will yield cash flows of $16,800 per year for 4 years. Project B has a computed net present value of
$2,750 over a 4-year life. Project A could be sold at the end of 4 years for $14,200.
Following is a table for the present value of $1 at compound interest:
Year
6%
10%
12%
0.943
0.909
0.893
0.890
0.826
0.797
3
0.840
0.751
0.712
4
0.792
0.683
0.636
5
0.747
0.621
0.567
Following is a table for the present value of an annuity of $1 at compound interest:
Year
6%
10%
12%
<
1
0.943
0.909
0.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Use the tables above.
a. Determine the net present value of Project A over a 4-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal
places.
b. Which project provides the greatest net present value?
?
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