Boleyn Company
Boleyn Company Is Considering Two Projects Present Value of an Annuity of $1 in Arrears

question 62

Multiple Choice

Boleyn Company
Boleyn Company is considering two projects. $$\begin{array} { l r r } &\text { Project } A & \text { Project B } \\\text { Initial investment } & \$ 100,000 & \$ 25,000 \\\text { Annual cash flows } & \$ 18,750 & \$ 8,580 \\\text { Life of the project } & 8 \text { years } & 4 \text { years } \\\text { Depreciation per year } & \$ 25,000 & \$ 6,250\end{array}$$ Present value of an annuity of $1 in arrears $$\begin{array} { l l l l l } \text { Periads } & 8 \% & 10 \% & 12 \% & 14 \% \\1 & 0.926 & 0.909 & 0.893 & 0.877 \\2 & 1.783 & 1.736 & 1.690 & 1.647 \\3 & 2.577 & 2.487 & 2.402 & 2.322 \\4 & 3.312 & 3.170 & 3.037 & 2.914 \\5 & 3.993 & 3.791 & 3.605 & 4.433 \\6 & 4.623 & 4.355 & 4.111 & 3.889 \\7 & 5.206 & 4.868 & 4.564 & 4.288 \\8 & 5.747 & 5.335 & 4.968 & 4.639 \\9 & 6.247 & 5.759 & 5.328 & 4.946 \\10 & 6.710 & 6.145 & 5.650 & 5.216\end{array}$$
-Refer to Boleyn Company. Suppose the company requires a minimum rate of return of 8%. Which project is higher in terms of net present value?

• A) Project A with an NPV of $3,415
• B) Project B with an NPV of $3,415
• C) Project A with an NPV of $7,756
• D) Project B with an NPV of $7,756

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