Project 1 requires an original investment of 69900 The proje

Project 1 requires an original investment of $69,900. The project will yield cash flows of $12,000 per year for seven years. Project 2 has a calculated net present value of $12,700 over a five-year life. Project 1 could be sold at the end of five years for a price of $45,000.

Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.

a. Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar.
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b. Which project provides the greatest net present value?

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Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	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
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Determine the net present value of Project 1 over a five-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar.

b. Which project provides the greatest net present value?

Project 1 becuase NPV is Higher

Period	Cash Flow	PV factor	PV
0	-69900	1	-69900
1	12000	0.943	11316
2	12000	0.89	10680
3	12000	0.84	10080
4	12000	0.792	9504
5	57000	0.747	42579
NPV	14259

Project 1 requires an original investment of $69,900. The project will yield cash flows of $12,000 per year for seven years. Project 2 has a calculated net pres

Project 1 requires an original investment of 69900 The proje

Solution

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