Project A requires an original investment of $66,800. The project will yield cash flows of $19,800 per year for 4 years. Project B has a computed net present value of $3,090 over a 4-year life. Project A could be sold at the end of 4 years for a price of $16,000. 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 4-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal places. $fill in the blank 1 b. Which project provides the greatest net present value?
Project A requires an original investment of $66,800. The project will yield cash flows of $19,800 per year for 4 years. Project B has a computed net present value of $3,090 over a 4-year life. Project A could be sold at the end of 4 years for a price of $16,000. 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 4-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal places. $fill in the blank 1 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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Project A requires an original investment of $66,800. The project will yield cash flows of $19,800 per year for 4 years. Project B has a computed net present value of $3,090 over a 4-year life. Project A could be sold at the end of 4 years for a price of $16,000.
Following is a table for the present value of $1 at
| 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
| 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
$fill in the blank 1
b. Which project provides the greatest net present value?
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