Question: APPLY THE CONCEPTS: Net present value Project A This project requires an initial investment of $186,120. The project will have a life of 4 years.
APPLY THE CONCEPTS: Net present value
Project A This project requires an initial investment of $186,120. The project will have a life of 4 years. Annual revenues associated with the project will be $75,000 and expenses associated with the project will be $15,000 for an annual net cash flow of $.
Note: Enter cash flows as positive numbers.
| Cash Flows | ||
| Year 0 | -$186,120 | |
| Year 1 | ||
| Year 2 | ||
| Year 3 | ||
| Year 4 | ||
Project B This project requires an initial investment of $210,600. The project will have a life of 4 years. Annual revenues associated with the project will be $80,000, and expenses associated with the project will be $15,000, for an annual net cash flow of $.
| Cash Flows | ||
| Year 0 | -$210,600 | |
| Year 1 | ________ | |
| Year 2 | ________ | |
| Year 3 | ________ | |
| Year 4 | ________ | |
The cost of capital for the company is 8%.
Use the minus sign to indicate a negative NPV. If an amount is zero, enter"0".
| Project A NPV Analysis | |||||||||
| Year | Cash Flow | Discount Factor | Present Value | ||||||
| 0 | $186,120 | 1.000 | $186,120 | ||||||
| 14 | 60,000 | 3.312, 0.735, 3.037 | _______ | ||||||
| NPV | $_____ | ||||||||
| Project B NPV Analysis | |||||||||
| Year | Cash Flow | Discount Factor | Present Value | ||||||
| 0 | $210,600 | 1.000 | $210,600 | ||||||
| 14 | 65,000 | 3.312, 0.735, 3.037 | ________ | ||||||
| NPV | $_______ | ||||||||
Based upon net present value, which project has the more favorable profit prospects A or B?
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