Question

E12-29A (similar to) B Question Help 0 Monette Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $915,000. Projected net cash inflows are as follows: (Click the icon to view the projected net cash inflows.) (Click the icon to view the present value annuity (Click the icon to view the present value table.) table.) (Click the icon to view the future value table.) (Click the icon to view the future value annuity table.) Read the requirements Requirement 1. Compute this project's NPV using Monette Industries' 14% hurdle rate. Should Monette Industries invest in the equipment? Why or why not? Begin by computing the project's NPV (net present value). (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.) Net present value $ 27623 Data Table Year 1 Year 2 Year 3 $264,000 $254,000 $225,000 $212,000 $200,000 $174,000 Year 4 Year 5 Enter any number in the edit fields and the Year 6

Answer 1

Correct Answer:

	A	B	C	D =A*C	E =B*C	F =D+E
year	Cash outflow	Cash inflow	PV of $1 @ 14%	PV of cash outflow	Pv of cash inflow	PV of net cash flow
0	$                            (9,15,000.00)		1.0000	$        (9,15,000.00)	$                      -	$     (9,15,000.00)
1		$        2,64,000.00	0.8772	$                             -	$   2,31,578.95	$       2,31,578.95
2		$        2,54,000.00	0.7695	$                             -	$   1,95,444.75	$       1,95,444.75
3		$        2,25,000.00	0.6750	$                             -	$   1,51,868.59	$       1,51,868.59
4		$        2,12,000.00	0.5921	$                             -	$   1,25,521.02	$       1,25,521.02
5		$        2,00,000.00	0.5194	$                             -	$   1,03,873.73	$       1,03,873.73
6		$        1,74,000.00	0.4556	$                             -	$       79,272.06	$           79,272.06
	NPV project A					$         (27,440.90)

The company should not invest in the project because the net present value of the project after 6 years is less than 0 .

Requirement 2:

	A	B	C	D =A*C	E =B*C	F =D+E
year	Cash outflow	Cash inflow	PV of $1 @ 24%	PV of cash outflow	Pv of cash inflow	PV of net cash flow
0	$                            (9,15,000.00)		1.0000	$        (9,15,000.00)	$                      -	$     (9,15,000.00)
1		$        2,64,000.00	0.8772	$                             -	$   2,31,578.95	$       2,31,578.95
2		$        2,54,000.00	0.7695	$                             -	$   1,95,444.75	$       1,95,444.75
3		$        2,25,000.00	0.6750	$                             -	$   1,51,868.59	$       1,51,868.59
4		$        2,12,000.00	0.5921	$                             -	$   1,25,521.02	$       1,25,521.02
5		$        2,00,000.00	0.5194	$                             -	$   1,03,873.73	$       1,03,873.73
6		$        1,74,000.00	0.4556	$                             -	$       79,272.06	$           79,272.06
6	$                            (1,00,000.00)		0.4556	$           (45,558.65)	$                      -	$         (45,558.65)
7		$           72,000.00	0.3996	$                             -	$       28,773.89	$           28,773.89
7		$           51,000.00	0.3996	$                             -	$       20,381.50	$           20,381.50
	NPV project A					$         (23,844.16)

The company should not invest in the project as even after refurbishing the machine the net present value @ 14% is less than 0

End of answer.

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