Question

1.

Project 1 requires an original investment of $63,600. The project will yield cash flows of $12,000 per year for five years. Project 2 has a calculated net present value of $12,300 over a three-year life. Project 1 could be sold at the end of three years for a price of $53,000.

Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

a. Determine the net present value of Project 1 over a three-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar.
$________

2.

The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals:

	3D Printer		Truck
Amount of investment	$52,000			$68,000
Useful life	4 years			7 years
Estimated residual value	0			0
Estimated total income over the useful life	$7,800			$28,560

Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place.

3D Printer	_______ %
Truck	_______%

3.

The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life:

	Net Income		Net Cash Flow
Year 1	$46,000		$83,500
Year 2	27,000		64,500
Year 3	15,500		53,000
Year 4	6,500		44,000

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

1. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. If required, round to the nearest dollar.

   Net present value

   $________

Thank you so much!

Answer 1

Q1.
Project-1
Annual cash flows			12000
Multiply: Annuity PVF at 6% for 3 yrs	2.673
Present value of annual cash flows		32076
Salvage value			53000
Multiply: PVF at 6% for 3rd year		0.84
Present value of salvage			44520
Present value of cash inflows			76596
Less: Investment				63600
Net present value				12996
Project 1 is better
Q2.
			3D	Truck
Net Income-Annual		7800	28560
Divide: Average Investment	26000	34000
			(52000/2)	(68000/2)
Average rate of return	30%	84%
Req 3.
Year	Cash flows	PVF at 15%	Present value
1	83500	0.869565	72608.7
2	64500	0.756144	48771.27
3	53000	0.657516	34848.36
4	44000	0.571753	25157.14
Present value of inflows	181385
Less: Investment		150000
Net present value		31384