Reference no: EM13973107

Below are two investment ideas to work with:

Use straight-line amortization in all calculations and exclude income taxes.

	IDEA ONE	IDEA TWO
Initial capital investment	$120,000	$180,000
Estimated useful life	3 years	3 years
Estimated terminal salvage value	0	0
Estimated annual savings in cash operating costs	$50,000	$80,000
Minimum desired rate of return	10 %	12 %

	Present Value of $1 (3 years)	Present Value of an Annuity of $1 (3 years)
8%	0.7938	2.5771
10%	0.7513	2.4869
12%	0.7118	2.4018
14%	0.6750	2.3216
16%	0.6407	2.2459

The net present value in IDEA ONE is

A) $4,345

B) $82,435

C) $50,000

D) $90

The net present value in IDEA TWO is

A) $80,000

B) $12,144

C) $-328 (negative amount)

D) $123,056

3. Using the Present Value table above, calculate the present value of 5-year annuity of $10,000 and an annual earning return of 8%.

A) $31,700

B) $34,700

C) $37,910

D) $39,930