Project a Requires an Original Investment of $65,000

question 11

Short Answer

Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a calculated net present value of $5,500 over a 5-year life. Project A could be sold at the end of 5 years for a price of $30,000. (a) Using the table below, determine the net present value of Project A over a 5-year life with salvage value assuming a minimum rate of return of 12%. (b) Which project provides the greatest net present value?
Below is a table for the present value of $1 at compound interest.
Below is a table for the present value of an annuity of $1 at compound interest.

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Definitions:

Variable Cost

Expenses that change in proportion to the activity of a business.

Mud Statues

Refers specifically to figures crafted from earth materials like clay, often in a cultural or artistic context, but remains unrelated to economic jargon.

Total Cost

The complete expense incurred in the production of goods or services, including both fixed and variable costs.

Loan

Borrowed money that is expected to be paid back with interest.