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

$349,182.47 and $257,636.71

Step-by-step 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