Project 1 requires an original investment of $125,000. The project will yield cash flows of $50,000 per year for 10 years. Project 2 has a computed net present value of $135,000 over an eight-year life. Project 1 could be sold at the end of eight years for a price of $8,000.

(a) Using the present value tables in Exhibits 2 and 5, determine the net present value of Project 1 over an eight-year life, with residual value, assuming a minimum rate of return of 12%.

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