Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for seven years. Project B has a calculated net present value of $5,500 over a five year life. Project A could be sold at the end of five years for a price of $30,000. (a) Using the proper table below determine the net present value of Project A over a five-year life with salvage value assuming a minimum rate of return of 12%. (b) Which project provides the greatest net present value?
Below is a table for the present value of $1 at compound interest.
Year 6% 10% 12%
1 .943 .909 .893
2 .890 .826 .797
3 .840 .751 .712
4 .792 .683 .636
5 .747 .621. 567
Below is a table for the present value of an annuity of $1 at compound interest.
Year 6% 10% 12%
1 .943 .909 .893
21 .8331 .7361 .690
3 2.673 2.487 2.402
4 3.465 3.170 3.037
5 4.212 3.791 3.605