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Net Present Value A project has estimated annual net cash flows of $13,750 for six years and is estimated to cost $42,500. Assume a minimum acceptable rate of return of 20%. Use the Present Value of an Annuity of $1 at Compound Interest table below. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 1.736 2.487 3.170 3.791 2.855 2.589 2 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6 .802 107.360 4.355 1.690 1.626 1.528 2.402 2.283 2.106 3.037 3.605 3.353 2.991 4.111 3.785 3.326 4.564 4.160 3.605 4.968 4.487 3.837 5.328 4.772 4.031 5.6505.0194.192 4.868 9 5.335 5.759 6.145 Determine (a) the net present value of the project and (b) the present value index. If required, use the minus sign to indicate a negative net present value. Net present value of the project (round to the nearest dollar) Present value index (rounded to two decimal places) Internal Rate of Return A project is estimated to cost $302,666 and provide annual net cash flows of $91,000 for six years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 4.917 4.355 4.111 3.784 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 107.360 6.145 5.6505.0194.192 Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above. Net Present Value-Unequal Lives Project 1 requires an original investment of $46,100. The project will yield cash flows of $10,000 per year for six years. Project 2 has a calculated net present value of $11,400 over a four-year life. Project 1 could be sold at the end of four years for a price of $39,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. 0.833 0.579 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 0.467 0.404 0.327 0.233 0.424 0.361 0.284 0.194 100 .558 0.386 0.322 0.247 0.162 0.627 0.592 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.9090.893 0.870 0.833 2 1.833 1.736 1.6901.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 4.917 4.355 3.784 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 9 6 .802 5.759 5.328 4.772 4.031 107.360 6.145 5.6505.0194.192 a. Determine the net present value of Project 1 over a four-year life with residual value, assuming a minimum rate of return of 10%. If required, round to the nearest dollar. 4.111 b. Which project provides the greatest net present value
