Question

Assume that Flint Inc. has a capital budget of $ 205,000. In addition, it has the following projects for evaluation. Determine which project(s) should be chosen, assuming kis 15 percent. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 2 decimal places e.g. 58,971.25.) CF3 Project A Initial CF -97,000 -68,500 -108,000 CF1 77,000 46,000 51,000 CF2 76,000 57,000 97,000 B 67,000 77,000 C NPVA NPVAC $ NPVBC should be chosen.

Answer 1

Pls find below workings, steps and answers:

NPV of total of Projects A & B = $ 86077.22

NPV of total of Projects A & C = $ 87745.95

NPV of total of Projects B & C = $ 118976.29

Hence, since the combination of Projects B & C is giving highest NPV with the limited Budget constriant, this combination should be chosen.

YEAR 1 3 Project A Project B Project C 0 -97,000 -68,500 -1,08,000 77,000 46,000 51,000 2 76,000 57,000 97,000 67,000 77,000 Discounting Factor 15.0% 0 1 2 3 YEAR Discounting Factor 1.0000 0.8696 0.7561 0.6575 NPV Discounted Cash Flow Project A Project B Project C -97,000 -68,500 -1,08,000 66,957 40,000 44,348 57,467 43,100 73,346 44,054 50,629 27,423.44 58,653.78 60,322.51 Project A&B Project A&C Project B&C NPV 86,077.22 87,745.95 1,18,976.29

Computation of Net Present Value (NPV) based on the Discounted Cash flows; The Discounting factor is computed based on the formula: For year 0, the discounting factor is 1; For Year 1, it is computed as = Year 0 factor /(1+discounting factor%) ; Year 2 = Year 1 factor/(1+discounting factor %) and so on;

Next, the cashflows need to be multiplied with the respective years' discounting factor, to arrive at the discounting cash flows;

The total of all the discounted cash flows is equal to its respective Project NPV of the Cash Flows;