You are evaluating projects 1 and 2. The projects have the following yearly operating profit. Depreciation expense is $2,000 per year for each project. Assume a 10% required rate of return. Project 1 Project 2 Year 1 $ 3,370 $ 8,000 Year 2 $ 3,500 $ 8,000 Year 3 $ 4,100 $ 8,000 Year 4 $ 4,270 $ 8,000 Year 5 $ 4,620 $ 8,000 Investment $ 18,000 $ 33,200 Required: Using Average Rate of Return, which project, if any, would you evaluate further and why? Using Net Present Value analysis, please answer the following questions: Assuming you had $100,000 to invest, which investment would you make, if any, and why? Assuming you had $35,000 to invest, which investment would you make, if any, and why?
You are evaluating projects 1 and 2. The projects have the following yearly operating profit. Depreciation expense is $2,000 per year for each project. Assume a 10% required
Project 1 Project 2
Year 1 $ 3,370 $ 8,000
Year 2 $ 3,500 $ 8,000
Year 3 $ 4,100 $ 8,000
Year 4 $ 4,270 $ 8,000
Year 5 $ 4,620 $ 8,000
Investment $ 18,000 $ 33,200
Required:
- Using Average Rate of Return, which project, if any, would you evaluate further and why?
- Using
Net Present Value analysis, please answer the following questions: - Assuming you had $100,000 to invest, which investment would you make, if any, and why?
- Assuming you had $35,000 to invest, which investment would you make, if any, and why?
PV factors are as follows:
Years PV of $1 PV of
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621 3.791
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