Question

Chedk m he product development group of a high-tech electronics company developed five proposals for new products. The company wants expand its product offerings, so it will undertake all projects that are economically attractive at the company's MARR of 11% per year he cash flows (in $1000 units) associated with each project are estimated. Which projects, if any, should the company accept on the asis of a present worth analysis? Project itial Investment Operating Cost, per Year Revenue, per Year Salvage Value Life A D S-1,500 $-360 $525 $80 8 years $-400 S-60 $300 $-510 $-120 $225 $30 10 years $-700 $-390 $450 $5 5 years $-1800 $760 $800 $30 4 years $8 3 years The present worth of project A is S The present worth of project B is S The present worth of project C is $1 The present worth of project D is $ The present worth of project E is $ Project A is Cick to select) Project B is Cick to select Project Cis Cick to select Project D is CER to select )

Answer 1

ANALYSIS OF PROJECT A

Rate

Discount Rate

11%

Nper

Number of years

3

Pmt

Annual Cash Inflow

$240,000

(300-60)000

Fv

Salvage Value

$8,000

PV

Present Worth of Cash inflows

$592,341

(Using PV function of excel with Rate =11%, Nper=3, Pmt=-240000,Fv=-8000)

I

Initial Cash Flow

($400,000)

NPW=PV+I

Net Present Worth

$192,341

ANALYSIS OF PROJECT B

Rate

Discount Rate

11%

Nper

Number of years

10

Pmt

Annual Cash Inflow

$105,000

(225-120)000

Fv

Salvage Value

$30,000

PV

Present Worth of Cash inflows

$628,935

I

Initial Cash Flow

($510,000)

NPW=PV+I

Net Present Worth

$118,935

ANALYSIS OF PROJECT C

Rate

Discount Rate

11%

Nper

Number of years

5

Pmt

Annual Cash Inflow

$60,000

(450-390)000

Fv

Salvage Value

$5,000

PV

Present Worth of Cash inflows

$224,721

I

Initial Cash Flow

($700,000)

NPW=PV+I

Net Present Worth

($475,279)

ANALYSIS OF PROJECT D

Rate

Discount Rate

11%

Nper

Number of years

8

Pmt

Annual Cash Inflow

$165,000

(525-360)000

Fv

Salvage Value

$80,000

PV

Present Worth of Cash inflows

$883,824

I

Initial Cash Flow

($1,500,000)

NPW=PV+I

Net Present Worth

($616,176)

X f =PV(J5,J6,-17,-18) E A B C D F G H J K L M N O P Q R ANALYSIS OF PROJECT A 11% (300-60)000 Rate Discount Rate Nper Number of years Pmt Annual Cash Inflow Salvage Value PV Present Worth of Cash inflows Initial Cash Flow NPW=PV+1 Net Present Worth FV $240,000 $8,000 $592,341 ($400,000) $192,341 (Using PV function of excel with Rate = 11%, Nper=3, Pmt=-240000, Fv=-8000) 1 x fix =PV(150,351,-452,-J53) E F A B C D G K L M N O P ANALYSIS OF PROJECT E 11% Rate Nper Pmt (800-760)000 Discount Rate Number of years Annual Cash Inflow Salvage Value Present Worth of Cash inflows Initial Cash Flow Net Present Worth PV $40,000 $30,000 $143,860 ($1,800,000) ($1,656,140) NPW=PV+ * 19949580*380*235 883 88 68 % Present Worth Project A Present Worth Project B Present Worth Project C Present Worth Project D Present Worth Project E $192,341 $118,935 ($475,279) ($616,176) ($1,656,140) Project A is Project B is Project Cis Project Dis Project E is Accepted Accepted Rejected Rejected Rejected