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.