Question

Use the NPV method to determine whether Preston Products should invest in the following projects: • Project A costs $275,000 and offers eight annual net cash inflows of $56,000. Preston Products requires an annual return of 14% on projects like A. • Project B costs $375,000 and offers nine annual net cash inflows of $74,000. Preston Products demands an annual return of 10% on investments of this nature. 2 (Click the icon to view the present value annuity table.) 3 (Click the icon to view the present value table.) (Click the icon to view the future value annuity table.) (Click the icon 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 A is $ The NPV of Project B is $ Now calculate the maximum acceptable price to pay for each project. (Round your answers to the nearest whole dollar.) Project A is $ Project B is $ .

Answer 1

a) NPV of project A:-

=-PV(14%,8,56000)-275000

=-15224

b) NPV of project B:-

=-PV(10%,9,74000)-375000

=51168

c) Maximum acceptable for Project A:-

=-PV(14%,8,56000)

=259776

d) Maximum acceptable for project B:-

=-PV(10%,9,74000)

=426168