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Problem 155
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1.
Net present value analysis:
Site A:
Annual net cash flow (at the end of each of 6 years)
Present value of an annuity of $1 at 20% for 6 years
x
Present value of annual cash flows
Less amount to be invested
Net present value
Site B:
Annual net cash flow (at the end of each of 4 years)
Present value of an annuity of $1 at 20% for 4 years
x
Present value of annual cash flows
Less amount to be invested
Net present value
2.
Net present value analysis:
Net Cash Flow
Present Value of Net Cash Flow
Year
Site A
Site B
Site A
Site B
1
2
3
4
Residual value
Total
Amount to be invested
Net present value
3.
Which of the following points are valid and could be reported to the Investment Committee?
a. Projects must be compared over equal lives, so the residual value of Site A
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 Winter '08
 THOMAS
 Accounting

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