Trevoline Company Is Deciding Between Two Projects

question 112

Essay

Trevoline Company is deciding between two projects. Each project requires an initial investment of $350,000. The projected net cash flows for the two projects are listed below. The revenue is to be received at the end of each year. Trevoline requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity factors for 10% are presented below. Use net present value to determine which project should be pursued and explain why.
$$\begin{array} { c c c c c } \text { Periods } & \begin{array} { c } \text { Project A } \\\text { CashFlows }\end{array} & \begin{array} { c } \text { Project B } \\\text { Cash Flows }\end{array} & \begin{array} { c } \text { Present Value } \\\text { of } 1 \text { at } 10 \%\end{array} & \begin{array} { c } \text { Present Value of an } \\\text { Annuity of } 1 \text { at } 10 \%\end{array} \\1 & \$ 50,000 & \$ 160,000 & 0.9091 & 0.9091 \\2 & \$ 200,000 & \$ 175,000 & 0.8264 & 1.7355 \\3 & \$ 250,000 & \$ 175,000 & 0.7513 & 2.4869\end{array}$$

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