Present value of an Annuity of $1 in Arrears ? Periods 4% 6% 8% 10% 12%...

Present value of an Annuity of $1 in Arrears

Periods	4%	6%	8%	10%	12%	14%
1	0.962	0.943	0.926	0.909	0.893	0.877
2	1.886	1.833	1.783	1.736	1.690	1.647
3	2.775	2.673	2.577	2.487	2.402	2.322
4	3.630	3.465	3.312	3.170	3.037	2.914
5	4.452	4.212	3.993	3.791	3.605	4.433
6	5.242	4.917	4.623	4.355	4.111	3.889
7	6.002	5.582	5.206	4.868	4.564	4.288
8	6.733	6.210	5.747	5.335	4.968	4.639
9	7.435	6.802	6.247	5.759	5.328	4.946
10	8.111	7.360	6.710	6.145	5.650	5.216

Cleves Company is considering two projects.

?	Project X	Project Y
Initial investment	$500,000	$100,000
Annual cash flows	$88,500	$34,320
Life of the project	10 years	4 years
Depreciation per year	$50,000	$25,000

Cleves requires a minimum rate of return of 8%.

A.	What is the accounting rate of return for each project?
B.	What is the net present value for each project?
C.	What is the internal rate of return for each project?
D.	Given that only one project can be selected, which project should be chosen? Explain your reasoning.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

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