How do you solve this present value?
How do you solve present value on question #2 (below) from Oliver Lehmann 75 free questions for 5th edition? www.oliverlehmann.com/pmp-self-test/75-free-questions.htm#providers_
A company has to make a choice between two projects, because the available resources in money and kind are not sufficient to run both at the same time. Each project would take 9 months And would cost $250,000. 1. The first project is a process optimization which would result in a cost reduction of $120,000 per year. 2. The second project would be the development of a new product which could produce the following net profits after the end of the project: 1. Year: $15,000 2. Year: $125,000 3. Year: $220,000 Assumed is a discount rate of 5% per year. Looking at the present values of the benefits of these projects in the first 3 years, what is true? Answer: The first project is more attractive by app. 3%