Question Content AreaProject A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a computed net present value of $5,500 over a 5-year life. Project A could be sold at the end of 5 years for a price of $30,000.Following is a table for the present value of $1 at compound interest:Year6%10%12%10.9430.9090.89320.8900.8260.79730.8400.7510.71240.7920.6830.63650.7470.6210.567Following is a table for the present value of an annuity of $1 at compound interest:Year6%10%12%10.9430.9090.89321.8331.7361.69032.6732.4872.40243.4653.1703.03754.2123.7913.605Use the tables above.a. Determine the net present value of Project A over a 5-year life with salvage value assuming a minimum rate of return of 12%.fill in the blank 1 of 1$b. Which project provides the greatest net present value?

In a typical capital budgeting project, the NPV is to be determined. The initial investment and the…

Answered: Project A requires an original…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 5BE

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Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a computed net present value of $5,500 over a 5-year life. Project A could be sold at the end of 5 years for a price of $30,000.

Following is a table for the present value of $1 at compound interest:

Year 6% 10% 12%

1 0.943 0.909 0.893

2 0.890 0.826 0.797

3 0.840 0.751 0.712

4 0.792 0.683 0.636

5 0.747 0.621 0.567

Following is a table for the present value of an annuity of $1 at compound interest:

Year 6% 10% 12%

1 0.943 0.909 0.893

2 1.833 1.736 1.690

3 2.673 2.487 2.402

4 3.465 3.170 3.037

5 4.212 3.791 3.605

Use the tables above.

a. Determine the net present value of Project A over a 5-year life with salvage value assuming a minimum rate of return of 12%.
fill in the blank 1 of 1$

b. Which project provides the greatest net present value?

Year	6%	10%	12%
1	0.943	0.909	0.893
2	0.890	0.826	0.797
3	0.840	0.751	0.712
4	0.792	0.683	0.636
5	0.747	0.621	0.567

Year	6%	10%	12%
1	0.943	0.909	0.893
2	1.833	1.736	1.690
3	2.673	2.487	2.402
4	3.465	3.170	3.037
5	4.212	3.791	3.605

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