Apply Time Value Of Money Concepts Practice Test

A private hospitality company is assessing the present value of a lease requiring $200,000 payments at the end of each year for 10 years. The company’s incremental borrowing rate is 5% compounded annually. What is the present value of the lease payments (rounded to the nearest $1,000)?

A private logistics company is evaluating two mutually exclusive projects using net present value. Project A requires $1,000,000 today and returns $290,000 at each year-end for 5 years. Project B requires $1,000,000 today and returns $230,000 at each year-end for 6 years. Using an 8% discount rate compounded annually, what is the net present value of the investment for the higher-NPV project (rounded to the nearest $1,000)?