45. Project A requires an original investment of $54,300. The project will yield
ID: 2430666 • Letter: 4
Question
45. Project A requires an original investment of $54,300. The project will yield cash flows of $15,000 per year for seven years. Project B has a calculated net present value of $3,240 over a four year life. Project A could be sold at the end of four years for a price of $18,300.
Below 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
Below 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
(a) Using the present value tables above, determine the net present value of Project A over a four-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal places. Enter negative values as negative numbers.
$
(b) Which project provides the greatest net present value?
(Project A/B)
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
Explanation / Answer
a Present value of cash flows 45555.00 =15000*3.037 Present value of salvage value 11638.80 =18300*0.636 Less: Investment cost 54300.00 Net present value 2893.80 b Project B provides the greatest net present value
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.