Question
McDougal Products has $15,000 to invest and is trying to decide between two alternatives using a net present value analysis. The companys discount rate is
McDougal Products has $15,000 to invest and is trying to decide between two alternatives using a net present value analysis. The companys discount rate is 12% and information about the alternatives cash flows are presented below:
| Project X | Project Y | |||
| Investment required | $ | 20,000 | $ | 20,000 |
| Annual cash inflows in each year of the projects life | $ | 6,000 | ||
| Single cash inflow at the end of the project | $ | 24,000 | ||
| Life of the project | 4 years | 4 years | ||
The net present value of each of the projects is closets to (factors from Exhibit 12B-1 and Exhibit 12B-2 for an interest rate of 12% are provided below):
| Period | Present value of $1 | Present value of an annuity |
| 1 | 0.893 | 0.893 |
| 2 | 0.797 | 1.690 |
| 3 | 0.712 | 2.402 |
| 4 | 0.636 | 3.037 |
| 5 | 0.567 | 3.605 |
| a. | Project X Project Y ($4,736) ($4,736) | |
| b. | Project X Project Y ($1,772) ($1,772) | |
| c. | Project X Project Y $1,772 $4,736 | |
| d. | Project X Project Y ($1,772) ($4,736) |
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Fundamentals of Database Systems
Authors: Ramez Elmasri, Shamkant Navathe
6th edition
136086209, 978-0136086208
