New Hampshire Company is considering two investments. The relevant data follows:
ID: 2423542 • Letter: N
Question
New Hampshire Company is considering two investments. The relevant data follows:
Project A Project B
Cost $200,000 $300,000
Annual cash savings(end of year) $50,692 $60,995
Terminal salvage value $50,000 $70,000
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation Straight-line Straight-line
Present Value Present Value
Of $1 of Ordinary
for 5 periods Annuity of $1
for 5 periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331
Ignore taxes. Using the net present value method, which project should be accepted? SHOW WORK
New Hampshire Company is considering two investments. The relevant data follows:
Project A Project B
Cost $200,000 $300,000
Annual cash savings(end of year) $50,692 $60,995
Terminal salvage value $50,000 $70,000
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation Straight-line Straight-line
Present Value Present Value
Of $1 of Ordinary
for 5 periods Annuity of $1
for 5 periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331
Ignore taxes. Using the net present value method, which project should be accepted? SHOW WORK
Explanation / Answer
Calculations of the present values Project A Year Cash Flow Discount PV 1-Jan -200000 1 -200000 1 to 5 50692 3.79 192122.7 5 50000 0.6209 31045 Present Values 23167.68 Project B Year Cash Flow Discount PV 1-Jan -300000 1 -300000 1 to 5 60995 3.79 231171.1 5 70000 0.6209 43463 Present Values -25366 Project A should be choosen due to higher present values