Show Me How an original investment of $67,900. The project will yield cash flows

Question

Show Me How an original investment of $67,900. The project will yield cash flows of $17,000 per year for seven years. Project 2 has a calculated net present value of $12,900 over a Project 1 r five-year lfe. Project 1 could be sold at the end of five years for a price of $77,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0,694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 0.747 0.6210.5670.497 0.402 6 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 0.6270.4670.404 0.327 0.233 0.592 0.4240.361 0.284 0.194 10 0.5580.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.4872.402 2.283 2.106 Ceck My Work PreviousNext 12:07 AM ^ ??4x 4/16/2018

Explanation / Answer

Question 1: Net present value of Project 1

Net present value = Discounted cash inflow - Discounted cash outflow

Step 1: Discounted Cash inflow from Project 1

Step 2: Discounted cash outflow

Discounted cash outflow = $67900

Step 3 : Net present value

NPV = 81801 - 67900 = $13901

Question 2:

Project 1 Net present value = $13,901

Project 2 Net present value = $12,900

So the Project 1 provides the greatest Net present value.

At the end of year Amount of Cash inflow Present value annuity/ Present value factor Discounted cash flow 1-5 17000 2.991 50847 5 77000 0.402 30954 Total $81801

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