Net present value method: Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is desired by the business based on the net income from the investment, and it is also called as the discounted cash flow method. To determine: The net present value of the Project 1 over a four year life.

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Please show step by stepNet Present Value—Unequal Lives Project 1 requires an original investment of $90,100. The project will yield cash flows of $22,000 per year for five years. Project 2 has a calculated net present value of $29,300 over a three-year life. Project 1 could be sold at the end of three years for a price of $81,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.a. Determine the net present value of Project 1 over a three-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar.b. Which project provides the greatest net present value?

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Chapter 26, Problem 26.5BPE

(a)

To determine

Net present value method:

Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is desired by the business based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of the Project 1 over a four year life.

(b)

To determine

The project that provides the greatest net present value.

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Please show step by stepNet Present Value—Unequal Lives Project 1 requires an original investment of $90,100. The project will yield cash flows of $22,000 per year for five years. Project 2 has a calculated net present value of $29,300 over a three-year life. Project 1 could be sold at the end of three years for a price of $81,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.a. Determine the net present value of Project 1 over a three-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar.b. Which project provides the greatest net present value?

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Net Present Value-Unequal Lives Project 1 requires an original investment of $57,000. The project will yield cash flows of $9,000 per year for 8 years. Project 2 has a computed net present value of $11,900 over a six-year life. Project 1 could be sold at the end of six years for a price of $37,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6. 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9. 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162