Project 1 requires an original investment of $ 55,000. The project will yield cash flows of $

Question:

Project 1 requires an original investment of $ 55,000. The project will yield cash flows of $ 15,000 per year for seven years. Project 2 has a calculated net present value of $ 5,000 over a four-year life. Project 1 could be sold at the end of four years for a price of $ 38,000.

(a) Determine the net present value of Project 1 over a four- year life, with residual value, assuming a minimum rate of return of 20%.

(b) Which project provides the greatest net present value?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...