APPLY THE CONCEPTS: Net present value Project A This project requires an initial investment of $194,400. 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 -$194,400 Year 1 Year 2 Year 3 Year 4

Project B This project requires an initial investment of $220,155. 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 -$220,155 Year 1 Year 2 Year 3 Year 4 The cost of capital for the company is 8%. Present Value Tables Present Value of $1 (a single sum) at Compound Interest. Present Value of an Annuity of $1 at Compound Interest. 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 $194,400 1.000 $194,400 14 60,000 NPV $

Project B NPV Analysis Year Cash Flow Discount Factor Present Value 0 $220,155 1.000 $220,155 14 65,000 NPV $ Based upon net present value, which project has the more favorable profit prospects?

APPLY THE CONCEPTS: Internal rate of return

Calculate the internal rate of return for Project A and Project B (defined previously). Enter the IRR with the percent sign (i.e. 4%).

Project A: IRR Analysis With an initial investment of $194,400 and annual cash flows of $, the internal rate of return for Project A is .

Project B: IRR Analysis With an intial investment of $220,155 and annual cash flows of $, the internal rate of return for Project B is .