Question

TABLE 6.4 FACTORS FOR CALCULATING THE PRESENT VALUE OF $1 Discount Rate No. of Periods 2% 4°10 6% 8% 10% 12% 1 4% 1 6% 18% 20% 0.980 0.9615 0.9434 0.9259 0.9091 0.8929 0.8772 0.8621 0.8475 0.8333 0.961 0.9246 0.8900 0.8573 0.8264 0.7972 0.7695 0.7432 0.7182 0.6944 0.942 0.8890 0.8396 0.7938 0.7513 0.7118 0.6750 0.6407 0.6086 0.5787 0.924 0.8548 0.7921 0.7350 0.6830 0.6355 0.5921 0.906 0.8219 0.7473 0.6806 0.6209 0.5674 0.5194 0.4761 0.888 0.7903 0.7050 0.6302 0.5645 0.5066 0.4556 0.4104 0.3704 0.3349 0.871 0.7599 0.6651 0.5835 0.5132 0.4523 0.3996 0.3538 0.3139 0.2791 0.853 0.7307 0.6274 0.5403 0.4665 0.4039 0.3506 0.3050 0.2660 0.2326 0.837 0.7026 0.5919 0.5002 0.4241 0.3606 0.3075 0.2630 0.2255 0.1938 0.820 0.6756 0.5584 0.4632 0.3855 0.3220 0.2697 0.2267 0.1911 0.1615 0.804 0.6496 0.5268 0.4289 0.3505 0.2875 0.2366 0.1954 0.1619 0.1346 0.788 0.6246 0.4970 0.3971 0.3186 0.2567 0.2076 0.1685 0.1372 0.1122 0.773 0.6006 0.4688 0.3677 0.2897 0.2292 0.1821 0.1452 0.1163 0.0935 0.758 0.5775 0.4423 0.3405 0.2633 0.2046 0.1597 0.1252 0.0985 0.0779 0.743 0.5553 0.4173 0.3152 0.2394 0.1827 0.1401 0.1079 0.0835 0.0649 0.728 0.5339 0.3936 0.2919 0.2176 0.1631 0.1229 0.0930 0.0708 0.0541 0.714 0.5134 0.3714 0.2703 0.1978 0.1456 0.1078 0.0802 0.0600 0.0451 0.700 0.4936 0.3503 0.2502 0.1799 0.1300 0.0946 0.0691 0.0508 0.0376 0.686 0.4746 0.3305 0.2317 0.1635 0.1161 0.0829 0.0596 0.0431 0.0313 0.673 0.4564 0.3118 0.2145 0.1486 0.1037 0.0728 0.0514 0.0365 0.0261 0.660 0.4388 0.2942 0.1987 0.1351 0.0926 0.0638 0.0443 0.0309 0.0217 0.647 0.4220 0.2775 0.1839 0.1228 0.0826 0.0560 0.0382 0.0262 0.018 0.634 0.4057 0.2618 0.1703 0.1117 0.0738 0.0491 0.0329 0.0222 0.015 0.622 0.3901 0.2470 0.1577 0.1015 0.0659 0.0431 0.0284 0.0188 0.0126 0.610 0.3751 0.2330 0.1460 0.0923 0.0588 0.0378 0.0245 0.0160 0.0105 0.552 0.3083 0.1741 0.0994 0.0573 0.0334 0.0196 0.0116 0.0070 0.0042 0.500 0.2534 0.1301 0.0676 0.0356 0.0189 0.0102 0.0055 0.0030 0.0017 0.453 0.2083 0.0972 0.0460 0.0221 0.0107 0.0053 0.0026 0.0013 0.0007 0.410 0.1712 0.0727 0.0313 0.0137 0.0061 0.0027 0.0013 0.0006 0.0003 0.372 0.1407 0.0543 0.0213 0.0085 0.0035 0.0014 0.0006 0.0003 0.0001 3 4 0.5523 0.5158 0.4823 0.4371 0.4019 6 7 8 10 12 13 15 17 18 20 23 24 25 30 35 40 45 50
The following capital expenditure projects have been proposed for management's consideration at Scott, Inc., for the upcoming budget year: Use Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) Project Year(s) A B C D E Initial investment 0 $ (63,000 ) $ (62,000 ) $ (138,000 ) $ (152,000 ) $ (304,000 ) Amount of net cash return 1 14,000 0 50,000 15,200 97,000 2 14,000 0 50,000 30,400 97,000 3 14,000 31,000 50,000 45,600 50,000 4 14,000 31,000 50,000 60,800 50,000 5 14,000 31,000 50,000 76,000 50,000 Per year 6-10 14,000 19,000 0 0 50,000 NPV (16% discount rate) $ 4,665 $ ? $ ? $ ? $ 13,115 Present value ratio 1.07 ? ? ? ?

Required, Calculate the net present value and present value ratio of projects B,C, D, and E using 16% as the cost of capital for Scott, Inc.; and then reccomend which products you would reccomend if the cost of capital is 16%a and 155k/462k/762k is availible for investment

Answer 1

B2 present present cash flow factor present cash flow factor value present factor value cash flow Value present cash flofue cash flow value factor @ 16% factor value factor factor value @ 16% 16% 0.8621 50,000 0.8621 43,105 15,200 0.8621 13,104 97,000 0.8621 $83,624 0.7432 $ 50,000 0.7432 37,160 30,400 0.7432 22,593 97,000 0.7432 $ 72,090 S14,000 0.6407$ 8,970 31,000 0.6407 19,862 50,000 0.6407 32,035 45,600 0.6407 29,216 50,000 0.6407 32,035 $14,000 0.5523 S 7,732 31,000 0.5523 $ 17,121 50,000 0.5523 $ 27,615 60,800 0.5523 33,580 50,000 0.5523$ 27,615 $ 14,000 0.4761 6,665 31,000 0.4761 14,759 50,000 0.4761 23,805$ 76,000 0.4761 $ 36,18450,000 0.4761 23,805 0.4104 $50,000 0.4104 20,520 0.3538 $0.3538 $ 50,000 0.3538 17,690 $ 14,000 0.3050 $ 4,270| $ 19,000 0.3050 $ 5,795|$ - 0.3050 $ - | $ 0.3050 $ · | $ 50,000 0.3050 $ 15,250 $ 14,000 0.2629 $ 3,681|$ 19,000 0.2629 $ 4,995|$ . 0.2629 $ . | $ . 0.2629 $ . | $ 50,000 0.2629 $ 13,145 S 50,000 0.2266 11,330 317,104 initial investment (year o$(63,000) 1.0000 $(63,000$(62,000) 1.0000(62,000 (138,000 1.0000 $(138,000 52,000) 1.0000 (12,000(304,000) 1.0000 $(304,000) 13,104 14,000 0.8621 12,069$0 $14,000 0.7432 $ 10,405 $ inflow in year 1 inflow in year 2 inflow in year 3 inflow in year 4 inflow in year 5 inflow in year 6 inflow in year 7 inflow in year 8 inflow in year 9 inflow in year 10 14,000 0.4104 5,746 19,000 0.4104 7,798 S S14,000 0.3538 4,953 19,000 0.3538 S 6,722 $ 0.4104 $S S 14,000 0.2266 S 3,172 S 19,000 0.2266 S 4,305 S 0.2266 $ 0.2266 $ t value of cash inflows 67,663 81,357 $163,720 134,677 net present value 19,357 $ (17,323 t value ratio if $155,000 is available if $462,000 is available if $762,000 is available 8 ABCE

formula view is given below -

B2 cash flow present value factor @ 16% present value cash flow present value cash flow present value cash present value cash flow 15200 0.8621 ะเ4"N14 97000 0.8621 04 P4 97000 0.7432 O5 PS 50000 0.6407 06 P6 50000 0.5523 O7 P7 50000 0.4761 08 P8 0.7432 =F5"G5 45600 0.6407 L6 M6 60800 0.5523 L7 M7 76000 0.4761 L8M8 14000 0.5523 31000 0.5523 F7 G7 31000 0.4761 F8 G8 -C10 D10 19000 0.3538 F10 G10 -C11 D11 19000 0.305 F11 G11 12"D12 |19000 0.2629 =F12"G12 19000 0.2266 F13 G13 0.3538 10-110 50000 0.3538 010 P10 0.2629 12 112 0.2266 13-113 0.2629 12"M12 0.2266 L13 M13 50000 0.2629 012 P12 50000 0.2266 013 P13 present value of cash inflows -SUM(E4 E13 -SUM(H4:H13) SUM K4:K13 SUMIN4:N13) al investment r-63000 1 138000 1 152000 1 t value ratio if $155,000 is available if $462,000 is available if $762,000 is available ABC ABCE