MANAGEMENT ACCOUNTING AND PAYROLL SYSTEM

NET PRESENT VALUE EXERCISES (CAPITAL BUDGETING)

A COMPANY IS CONSIDERING TO HAVE AN INVESTMENT ON ONE OF THE TWO PROJECT PROPOSALS NAMELY PROJECT A AND PROJECT B. BOTH PROJECT WILL REQUIRE A $10,000 INITIAL INVESTMENT AND BOTH PROJECTS WILL RUN FOR 4 YEARS. A CALCULATION FOR NET PRESENT VALUE IS NECESSARY SO THAT THE COMPANY CAN DECIDE WHICH AMONG THE PROJECT WILL THEY INVEST IN.

THE DETAILS OF THE PROJECTS ARE AS FOLLOWS:

YEAR

PROJECT A CASH FLOWS

PROJECT B CASH FLOWS

1

$ 5000

$ 1000

2

$ 4000

$ 3000

3

$ 3000

$ 4000

4

$ 1000

$ 6750

COMPUTE FOR THE NET PRESENT VALUE AND THE CORRESPONDING DISCOUNT FACTORS FOR BOTH PROJECTS AT EACH YEAR. THE PRE DETERMINED INTEREST RATE IS AT 10%.