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 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 Annuity of $1 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 3.791

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 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 Annuity of $1 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 3.791

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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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 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 Annuity of $1

1 0.909

2 0.826

3 0.751

4 0.683

5 0.621 3.791

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