Project A requires an original investment of $57,700. The project will yield cash flows of $16,600 per year for 4 years. Project B has a computed net present value of $3,270 over a 4-year life. Project A could be sold at the end of 4 years for a price of $16,300. Following is a table for the present value of $1 at compound interest:

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Project A requires an original investment of $57,700. The project will yield cash flows of $16,600 per year for 4 years. Project B has a computed net present value of $3,270 over a 4-year life. Project A could be sold at the end of 4 years for a price of $16,300.

Following is a table for the present value of $1 at compound interest:

Year   6%   10%   12%
1   0.943   0.909   0.893
2   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?

A. Project A
B. Project B
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