22. Project A requires an original investment of $61,200. The project will yield

Question

22. Project A requires an original investment of $61,200. The project will yield cash flows of $17,400 per year for seven years. Project B has a calculated net present value of $3,760 over a four year life. Project A could be sold at the end of four years for a price of $19,300.

Below is a table for the present value of $1 at Compound interest.

Below is a table for the present value of an annuity of $1 at compound interest.

(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

Project 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

Project A Present value of annual cash flows 52843.80 =17400*3.037 Present value of salvage value 12274.80 =19300*0.636 Less: Investment 61200 Net present value 3918.60 b Project A provides the greatest net present value

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