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Question
Trevoline Company is deciding between two projects. Each project requires an initial investment of $350,000. The projected net cash flows for the two projects are listed below. The revenue is to be received at the end of each year. Trevoline requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity factors for 10% are presented below. Use net present value to determine which project should be pursued and explain why.| Project A | Project B | Present Value | Present Value of an | |
| Periods | Cash Flows | Cash Flows | of 1 at 10% | Annuity of 1 at 10% |
| 1 | $50,000 | $160,000 | 0.9091 | 0.9091 |
| 2 | $200,000 | $175,000 | 0.8264 | 1.7355 |
| 3 | $250,000 | $175,000 | 0.7513 | 2.4869 |
Answer
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