Question

his Question: 12 pts 14 of 14 (14 complete) > 1 Reference Use the NPV method to determine whether Rouse Products should invest in the following projects • Project A Costs $280.000 and offers seven annual net cash inflows of $56,000 Rouse Products requires an annual return of 12% on in • Project Costs $385.000 and offers 9 annual net cash inflows of $70,000 Rouse Products demands an annual return of 10% on inves Click the icon to view Present Value of $1 table) Click the icon to view Present Value of Ordinary Annuity of $1 table) 5% Periods 1214 0990 sed 1913 2.941 1556 2775 2723 Project Present Read the regirements Cacate the vinet present of each project begin by calcating the Project A: Net Cash Annuity PV Factor Years Inflow -12% -7) 1-7 Present value of annuity 560000 0 Investment Net present value of Project A 24416) Calculate the NPV of Project Project Present Net Cash Inflow 70000 Annuity PV Factor (-10%, -9) .759 1-9 Present value of annuity vestment Net present of Pret Requirement 2. What is the maximum acceptable price to pay for each project? Max 1471 13.57812561 15562 292 13166 12 105 11.274 104 16.390 1992 13.754 12650 11680 1080 17221567314324313412085 11.15 18.046 15351 14877 13500 12482 1147 18.057 1701 15 415 1402012821 1176 1966017658 1593745113163 1200 20.4561820016444 1457 13.49 1230 2124318914 16.906 15 13.799 12560 22.023 19.503 174315121409412783 2257 133 23 60207832116033211 2031621201370416061489813405 258 21 19 18 16 15 141 13.591 22.30519000 1720 15372 13.766 15111510 2573021 7 52 Acceptable Price Project Regulament 3. What is the profitability index of each pro Round o decim Selecom Profitability Index Average on invested Projects Average annual operating ht Choose I fees and then continue to

Answer 1

i Requirement 1 2 3 Project A 5 Years Net cash flows inflow $ 56,000.0 1-7 Present value Investment Net present value of project A Annutiy PV facto. Present value (i=12%.n=7) 4.564 $ 2.55.584.0 $ 2,80,000.0 $ 24,416.0 10 Working notes: Year Year PV factor 0.893 0.797 0.712 0.636 0.567 0.507 0.452 4.564

D 21 Project B 22 23 Years Present value Investment Net present value of project b Net cash flows Annutiy PV facto Present value inflow (i=10%.n=9) $ 70,000 5.759 $ 4,03,130 -3,85,000 1$ 18,130 30 Working notes: 31 Year PV factor 32 33 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 5.759

A D E F Maximum acceptable price 2,55,584 4,03,130 43 Requirement 2: 44 Particulars 45 Priect A 46 Prject B 47 48 Requirement 3 49 50 Project A 51 Poject B =present value of net cash / initial investment = 2,55,584 / $ 2,80,000 = 4,03,130 $ 3,85,000 = Profitability index 0.91 1.05

1 Requirement 1 2 3 Project A Years 1-7 0 Present value Investment Net present value of project A Net cash flows Annutiy PV factor Present value inflow (i=12%.n=7) 56000 4.564 =+C6*D6 -280000 =SUM(E6:E7) 10 Working notes: 11 Year 12 1 13 2 14 3 15 4 16 5 17 6 18 7 19 20 PV factor =1/1.1241 =1/1.122 =1/1.1243 =1/1.1214 =1/1.1245 =1/1.126 =1/1.1247 =SUM(B12:B18)

А B Ε 21 Project B 22 23 Years 1-9 0 Present value Investment Net present value of project b Net cash flows Annutiy PV factor Present value inflow (i=10%.n=9) 70000 5.759 =+C24*D24 -385000 =SUM(E24:E25) 30 Working notes: 31 Year 32 1 33 2 34 3 354 36 5 37 38 7 39 8 40 9 41 PV factor =1/1.1^1 =1/1.1 2 =1/1.143 =1/1.114 =1/1.145 =1/1.146 =1/1.147 =1/1.18 =1/1.119 =SUM(B32:B40)

А B C D E 43 Requirement 2: 44 Particulars 45 Prject A 46 Prject B Maximum acceptable price 255584 403130 47 48 Requirement 3 49 50 Project A 51 Poject B =present value of net cash in / 255584 403130 initial investment 280000 385000 Profitability index =+B50/D50 =+B51/D51