Project 1 requires an original investment of $55,900. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $11,700 over a five-year life. Project 1 could be sold at the end of five years for a price of $44,000. 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 10% 12% 15% 0.909 0.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.386 0.322 Year 1 2 3 4 5 6 7 8 9 10 3 4 5 6 7 6% 0.943 0.890 0.840 0.792 0.747 0.705 Present Value of an Annuity of $1 at Compound Interest Year 6% 12% 15% 20% 1 0.943 0.893 0.833 0.870 2 1.833 1.690 1.626 1.528 2.673 2.402 2.283 2.106 3.465 3.037 2.855 2.589 4.212 3.605 3.353 2.991 4.917 4.111 3.785 3.326 5.582 4.564 4.160 3.605 6.210 4.968 4.487 3.837 5.328 4.772 4.031 6.802 7.360 5.650 5.019 4.192 8 9 10 0.665 0.627 0.592 0.558 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 a. Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar.
Project 1 requires an original investment of $55,900. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $11,700 over a five-year life. Project 1 could be sold at the end of five years for a price of $44,000. 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 10% 12% 15% 0.909 0.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.386 0.322 Year 1 2 3 4 5 6 7 8 9 10 3 4 5 6 7 6% 0.943 0.890 0.840 0.792 0.747 0.705 Present Value of an Annuity of $1 at Compound Interest Year 6% 12% 15% 20% 1 0.943 0.893 0.833 0.870 2 1.833 1.690 1.626 1.528 2.673 2.402 2.283 2.106 3.465 3.037 2.855 2.589 4.212 3.605 3.353 2.991 4.917 4.111 3.785 3.326 5.582 4.564 4.160 3.605 6.210 4.968 4.487 3.837 5.328 4.772 4.031 6.802 7.360 5.650 5.019 4.192 8 9 10 0.665 0.627 0.592 0.558 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 a. Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Net Present Value-Unequal Lives
Project 1 requires an original investment of $55,900. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $11,700 over a five-year life. Project 1 could be sold at the end
of five years for a price of $44,000.
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
10%
Year
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.943
0.909
0.870
0.833
1.833
1.736
1.626
1.528
2.673
2.487
2.283
3.465
3.170
2.855
4.212
3.791
3.353
4.917
4.355
3.785
5.582
4.868
4.160
6.210
5.335
4.487
6.802
4.772
5.759
6.145
7.360
5.019
8
9
10
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
a. Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar.
Expert Solution
Step 1: Net Present Value
Net present value is the present value of cash flow minus initial investment.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education