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Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a computed net present value of $5,500 over a 5-year life. Project A could be sold at the end of 5 years for a price of $30,000. 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 $1 at compound interest: Year 6% 10% 12% 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 Use the tables above. a.  Determine the net present value of Project A over a 5-year life with salvage value assuming a minimum rate of return of 12%. fill in the blank 1 of 1$ b.  Which project provides the greatest net present value?

Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a computed net present value of $5,500 over a 5-year life. Project A could be sold at the end of 5 years for a price of $30,000. 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 $1 at compound interest: Year 6% 10% 12% 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 Use the tables above. a.  Determine the net present value of Project A over a 5-year life with salvage value assuming a minimum rate of return of 12%. fill in the blank 1 of 1$ b.  Which project provides the greatest net present value?

Essentials Of Investments
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
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    Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a computed net present value of $5,500 over a 5-year life. Project A could be sold at the end of 5 years for a price of $30,000.

    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 5-year life with salvage value assuming a minimum rate of return of 12%.
    fill in the blank 1 of 1$

    b.  Which project provides the greatest net present value?

     
     
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