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Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investme
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Answer #1
Project C1
Initial Investment 336000
i 8%
Year Cash Inflow PV Factor PV
1 48000 0.9259 44443.2
2 144000 0.8573 123451.2
3 204000 0.7938 161935.2
Present value of cash inflows 329829.6
Less: Initial Investment 336000
NPV -6170.4
Should acquire? No
Project C2
Initial Investment 336000
i 8%
Year Cash Inflow PV Factor PV
1 132000 0.9259 122218.8
2 132000 0.8573 113163.6
3 132000 0.7938 104781.6
Present value of cash inflows 340164
Less: Initial Investment 336000
NPV 4164
Should acquire? Yes
Project C3
Initial Investment 336000
i 8%
Year Cash Inflow PV Factor PV
1 216000 0.9259 199994.4
2 96000 0.8573 82300.8
3 84000 0.7938 66679.2
Present value of cash inflows 348974.4
Less: Initial Investment 336000
NPV 12974.4
Should acquire? Yes

Projects with positive NPV must be accepted while those with negative NPV should be rejected

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