Solved: Consider the three hypothetical projects shown in Table 24.1. This time

Chapter 0, Problem 1

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QUESTION:

Consider the three hypothetical projects shown in Table 24.1. This time, however, suppose that the interest rate is only 2%.

a. Calculate the net present values of the three projects. Which one is now preferred?

b. Explain why the preferred choice is different with a 2% interest rate than with a 10% interest rate.

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QUESTION:

Consider the three hypothetical projects shown in Table 24.1. This time, however, suppose that the interest rate is only 2%.

a. Calculate the net present values of the three projects. Which one is now preferred?

b. Explain why the preferred choice is different with a 2% interest rate than with a 10% interest rate.

ANSWER:

Step 1 of 3

The net present value of an investment project helps in determining the current worth of an investment. It uses a rate of interest to transform the future value of investment into present value. This is used while comparing different projects.

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