# Which of the four projects listed blow should be chosen based on the time value of money if you only

## Question:

Which of the four projects listed blow should be chosen based on the time value of money if you only want to invest in one project and the criteria is Present Worth?

All projects are for five years and the MARR to be used in the evaluations is 10%.Project

X1 Invest \$13,000 today and receive \$25,000 in the fifth year.

X2 Invest \$7,000 today, receive annual benefits of \$4,000, and incur a salvage cost (cleanup) of \$8,000 in year 5.

X3 Invest \$15,000 today, receive annual payments of \$4,000, incur annual costs of \$2,000 and also receive a salvage value of \$10,000 in year 5.

X4 Invest \$9,000 today, receive annual payments of \$1,000, \$2,000, \$3,000, \$4,000 and \$5,000 and receive a salvage value of \$2,000 in the year following year 5.

(1) What is the Net Present Value of the project?

(2) What is the Internal Rate of Return for each project?

(3) Discuss which project(s) should be chosen considering?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...

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Related Book For

## Corporate Finance

ISBN: 978-0077861759

10th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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