Question

Use the NPV method to determine whether Mcknight Products should invest in the following projects: • Project A costs $275,000 and offers nicht annual net cash inflows of $61,000. Mcknight Products requires an annual return of 12% on projects like A • Project costs $375,000 and offers nine annual net cash inflows of $66.000. Mcknight Products demands an annual return of 14% on investments of this nature (Click the icon to view the present value annuity table.) Click the loon to view the present value table) Click the loon to view the future value annuity table) Click the loon to view the future value table) Requirement What is the NPV of each project? What is the maximum acceptable price to pay for each project? Calculate the NPV of each project (Round your answers to the nearest whole dollar Use parentheses or a minus sign for negative net present values.) The NPV of Project Aiss

Answer 1

Net present value = present value of annual net cash flow - initial investment

(1) project A:

net present value = ($61000 x PVAF) - $275000

= $61000 x 4.968) - $275000

= $303048 - $275000

= $28048

where,

PVAF(12%,8) = 4.968

(2) project B:

net present value = ($66000 x PVAF) - $375000

= $66000 x 4.946) - $375000

= $326436 - $375000

= -$48564

where,

PVAF(14%,9) = 4.946