Trevoline Company Is Deciding Between Two Projects

Essay

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.
$$\begin{array} { l | l | l | l | l } & \text { Project A } & \text { Project B } & \text { Present Value } & \text { Present Value of an } \\\hline \text { Periods } & \text { Cash Flows } & \text { Cash Flows } & \text { of \$1 at } 10 \% & \text { Annuity of \$1 at } 10 \% \\\hline 1 & \$ 50,000 & \$ 160,000 & 0.9091 & 0.9091 \\\hline 2 & \$ 200,000 & \$ 175,000 & 0.8264 & 1.7355 \\\hline 3 & \$ 250,000 & \$ 175,000 & 0.7513 & 2.4869\end{array}$$