Question

Following is information on two alternative investments being considered by Jolee Company. The company requires an 8% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Project A Project B
Initial investment $ (179,325 ) $ (152,960 )
Expected net cash flows in year:
1 41,000 33,000
2 41,000 43,000
3 86,295 54,000
4 81,400 77,000
5 54,000 36,000
For each alternative project compute the net present value.

Answer 1

Answer:

$349,182.47  and  $257,636.71  

Explanation:

The computation of net present value for each project is shown below:

For project A

                 ($)                                                           ($)

Year Cash flows Discount factor at 8% Present value   (A)

0          -179325        1.0000                       -179325.00

1          41000        0.9259                       37962.96

2          41000        0.8573                        35150.89

3         86295        0.7938                        68503.75

4         81400        0.7350                        141617.61

5         54000        0.6806                         245272.25

Sum of present value                            528507.47   (B)

Net present value                            349182.47   (A - B)

For project B

                        ($)                                                           ($)

Year Cash flows Discount factor at 8% Present value  

0         -152960           1.0000                         -152960.00   (A)

1          33000           0.9259                           30555.56

2          43000           0.8573                           36865.57

3          54000           0.7938                          42866.94

4          77000           0.7350                          110288.07

5          36000           0.6806                          190020.58

Sum of present value                            410596.71    (B)

Net present value                            257636.71    (A - B)

Refer to the discount factor table

Based on this the project A should be accepted as it generates high net present value