Project a Requires an Immediate Investment of $18 000 and Another

question 60

Essay

Project A requires an immediate investment of $18 000 and another $16 000 in three years. Net returns are $4500 after two years, $13 000 after four years, and $8900 after six years. Project B requires an immediate investment of $4000, another $6000 after two years, and $4000 after four years. Net returns are $3375 per year for 8 years. Determine the net present value at 11%. Which project is preferable according to the net present value criterion?

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Definitions:

Risk-Free Rate

A return on an investment that is guaranteed not to result in financial loss, usually tied to state bonds.

Expected Return

The anticipated profit or loss from an investment, taking into consideration the potential outcomes and their probabilities.

Earnings Growth Rate

The rate at which a company's net income is expected to grow, often used to evaluate the future profitability of a business.

Dividend Yield

An indicator showing the comparative annual dividends paid by a company against its stock price.