Question

Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $270,000 and would yield the following annual cash flows (PV of $1. FV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) C1 C2 Year Year 2 Year 3 Totals $ 26,000 122,000 182,000 $330,000 $110,000 110,000 110, eee $330,000 C3 $194,000 74,000 62,000 $330,000 (1) Assume that the company requires a 10% return from its investments. Using net present value, determine which projects, if any. should be acquired. (Negative net present values should be indicated with a minus sign. Round your answers to the nearest whole dollar.) Project C1 Initial Investment Chart Values are Based on: Year Cash Inflow X PV Factor = Present Value

Answer 1

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Solution: Discount table is not given, can be with 4 decimal or 5 decimal places. Answer can be slightly different, if table is different from 4 decimal places: Project C1 Initial investment 270000 Chart value are based on: 10% Year Cash inflow PV Factor (10%) Present Value 26000 0.9091 23637 2 122000 L 0.8264 100821 182000 0.7513 136737 261194 Present value of cash inflows Present value of cash outflows Net Present value Should the company acquire this investment? 261194 270000 -8,806 $ No Project C2 Initial investment 270000 Chart value are based on: 10% Year Cash inflow PV Factor (10%) Present Value 110000 0.9091 100001 110000 0.8264 90904 3 110000 0.7513 82643 273548 2 Present value of cash inflows Present value of cash outflows Net Present value Should the company acquire this investment? 273548 270000 3,548 Yes

Project C3 Initial investment 270000 Chart value are based on: 10% Year Cash inflow PV Factor (10%) Present Value 1 194000 0.9091 176365 2 74000 0.8264 6 1154 3 62000 0.7513 46581 284100 Present value of cash inflows Present value of cash outflows Net Present value Should the company acquire this investment? 284100 270000 14,100 Yes, $