Net Present Value-Unequal Lives Project 1 requires an original investment of $88,600. The project will yield cash flows of $17,000 per year for six years. Project 2 has a calculated net present value of $23,200 over a four-year life. Project 1 could be sold at the end of four years for a price of $69,000. 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 12% Year 6% 10% 15% 20% 0.909 1 0.943 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.712 3 0.840 0.751 0.658 0.579 0.792 0.683 0.636 0.572 4 0.482 0.621 5 0.747 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 0.424 0.592 0.361 0.284 0.194 0.247 10 0.558 0.386 0.322 0.162 Present Value of an Annuity of $1 at Compound Interest 15% Year 6% 10% 12% 20% 1 0.943 0.909 0.893 0.870 0.833 1.690 1.833 1.736 1.626 1.528 2.487 2.402 3 2.673 2.283 2.106 2.589 4 3.465 3.170 3.037 2.855 3.791 5 4.212 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 3.837 6.210 4.968 8 5.335 4.487 9 6.802 5.759 5.328 4.772 4.031 4.192 10 7.360 6.145 5.650 5.019 e net present value of Project 1 over a four-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar. а. D Project 1 $ Project 2 b. provides the greatest net present value?

Question
Net Present Value-Unequal Lives
Project 1 requires an original investment of $88,600. The project will yield cash flows of $17,000 per year for six years. Project 2 has a calculated net present value of
$23,200 over a four-year life. Project 1 could be sold at the end of four years for a price of $69,000.
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
12%
Year
6%
10%
15%
20%
0.909
1
0.943
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
0.712
3
0.840
0.751
0.658
0.579
0.792
0.683
0.636
0.572
4
0.482
0.621
5
0.747
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
0.424
0.592
0.361
0.284
0.194
0.247
10
0.558
0.386
0.322
0.162

Image Transcription

Net Present Value-Unequal Lives Project 1 requires an original investment of $88,600. The project will yield cash flows of $17,000 per year for six years. Project 2 has a calculated net present value of $23,200 over a four-year life. Project 1 could be sold at the end of four years for a price of $69,000. 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 12% Year 6% 10% 15% 20% 0.909 1 0.943 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.712 3 0.840 0.751 0.658 0.579 0.792 0.683 0.636 0.572 4 0.482 0.621 5 0.747 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 0.424 0.592 0.361 0.284 0.194 0.247 10 0.558 0.386 0.322 0.162

Present Value of an Annuity of $1 at Compound Interest
15%
Year
6%
10%
12%
20%
1
0.943
0.909
0.893
0.870
0.833
1.690
1.833
1.736
1.626
1.528
2.487
2.402
3
2.673
2.283
2.106
2.589
4
3.465
3.170
3.037
2.855
3.791
5
4.212
3.605
3.352
2.991
6
4.917
4.355
4.111
3.784
3.326
7
5.582
4.868
4.564
4.160
3.605
3.837
6.210
4.968
8
5.335
4.487
9
6.802
5.759
5.328
4.772
4.031
4.192
10
7.360
6.145
5.650
5.019
e net present value of Project 1 over a four-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar.
а. D
Project 1
$
Project 2
b.
provides the greatest net present value?

Image Transcription

Present Value of an Annuity of $1 at Compound Interest 15% Year 6% 10% 12% 20% 1 0.943 0.909 0.893 0.870 0.833 1.690 1.833 1.736 1.626 1.528 2.487 2.402 3 2.673 2.283 2.106 2.589 4 3.465 3.170 3.037 2.855 3.791 5 4.212 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 3.837 6.210 4.968 8 5.335 4.487 9 6.802 5.759 5.328 4.772 4.031 4.192 10 7.360 6.145 5.650 5.019 e net present value of Project 1 over a four-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar. а. D Project 1 $ Project 2 b. provides the greatest net present value?

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