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A Sarah Cengage NOWIO te x E C sjc.cengagenowy.com/ilrn/takeAssignment/takeAssignmentMain.do?invoker assignments&takeAssignmentSessionLocator-assignment-take; C other bookmarks Apps Save page as PDF Pin lt APPLY THE CONCEPTS: Net present value Project A This project requires an initial investment of $173,250. The project will have a life of 4 years. Annual revenues associated with the project will be $90,000 and expenses associated with the project will be $40,000 for an annual net cash flow of Note: Enter cash flows as positive numbers. Cash Flows $173,250 Year 0 Year 1 Year 2 Year 3 Year 4 Project B This project requires an initial investment of $63,400. The project will have a life of 4 years. Annual revenues associated with the project will be $90,000, and expenses associated with the project will be $70,000, for an annual net cash flow of Cash Flows -$63,400 Year 0 Year 1 Year 2 Year 3 Year 4 The cost of capital for the company is 7%. Present Value Tables Present Value of $1 (a single sum) at Compound Interest. Present Value of an Annuity of $1 at Compound Interest. 7:44 PM /12/2015

Explanation / Answer

Project A PV factor Cash flow Project B PV Factor Cash flow 0 -173250 1 -173250 0 -63400 1 -63400 1 50000 0.934579 46728.97 1 20000 0.934579 18691.59 2 50000 0.873439 43671.94 2 20000 0.873439 17468.77 3 50000 0.816298 40814.89 3 20000 0.816298 16325.96 4 50000 0.762895 38144.76 4 20000 0.762895 15257.9 NPV -3889.44 NPV 4344.225 Excel formula =NPV(rate, cash flow form Year 0 to Year 4)

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