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		select3.3120.7353.037Correct 11 of Item 4
NPV								$

Project B NPV Analysis
Year	Cash Flow		Discount Factor					Present Value
0	$220,155		1.000					$220,155
14	65,000		select3.3120.7353.037Correct 14 of Item 4
NPV								$

Based upon net present value, which project has the more favorable profit prospects? selectProject AProject BEither projectCorrect 17 of Item 4

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 .