Project Alpha requires an immediate investment of $16,000 and an additional investment of $12,000 in three years. Net returns are estimated to be $8,000 after two years, $24,000 after four years, and $18,000 after seven years. Project Omega requires an immediate investment of $8,000, an additional investment of $12,000 after two years and $8,000 after six years. Net returns are estimated to be $6,800 annually at the end of each year for seven years. The cost of capital is 10%. Required: Determine which project is preferable using the net present value criterion.
Project Alpha requires an immediate investment of $16,000 and an additional investment of $12,000 in three years. Net returns are estimated to be $8,000 after two years, $24,000 after four years, and $18,000 after seven years. Project Omega requires an immediate investment of $8,000, an additional investment of $12,000 after two years and $8,000 after six years. Net returns are estimated to be $6,800 annually at the end of each year for seven years. The cost of capital is 10%. Required: Determine which project is preferable using the net present value criterion.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Project Alpha requires an immediate investment of $16,000 and an additional
investment of $12,000 in three years. Net returns are estimated to be $8,000 after two
years, $24,000 after four years, and $18,000 after seven years.
Project Omega requires an immediate investment of $8,000, an additional investment of
$12,000 after two years and $8,000 after six years. Net returns are estimated to be
$6,800 annually at the end of each year for seven years.
The cost of capital is 10%.
Required:
Determine which project is preferable using the
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