Project 1 requires an original investment of $ 55,000. The project will yield cash flows of $ 15,000 per year for seven years. Project 2 has a calculated net present value of $ 5,000 over a four-year life. Project 1 could be sold at the end of four years for a price of $ 38,000.
(a) Determine the net present value of Project 1 over a four- year life, with residual value, assuming a minimum rate of return of 20%.
(b) Which project provides the greatest net present value?