Question

Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $330,000 and would yield the following annual cash flows. (PV of $1. FV of S1. PVA of S1. and EVA of Si) (Use appropriate factor(s) from the tables provided.) Year 1 Year 2 Year 3 Totals 46,000 $130,000 $214,000 142,000130,000 202,000 94,000 130,00082,000 390,000 $390,000 $390,000 a 5% return from its investments, using net present value, determine which Assume that the company requires if any, should be acquired. (Negative net present values should be indicated with a minus sign Round your answers to the nearest whole dollar) C1 Initial Investment Values are Based on: Year Cash Inflow x PV Factor = Present Value

Answer 1

Phoenix Company (1) Assuming that the company requires a 8% return from its investments, use net present value to determine which projects, if any, should be acquired Project C1 Initial Investment Discount-8% 330000 Year Cash Inflow PV Factor 0.9259 0.8573 0.7938 Present Value 42591 121737 160348 324676 2 142000 202000 Present value of cash inflows Present value of cash outflows Net present value Should the company acquire this investment? 324676 330000 5324 No Project C2 Year Cash Inflow 130000 130000 130000 PV Factor 0.9259 0.8573 0.7938 Present Value 120367 111449 103194 335010 2 Present value of cash inflows Present value of cash outflows Net present value Should the company acquire this investment? 335010 330000 5010 Yes Project C3 Year Cash Inflow PV Factor 0.9259 0.8573 0.7938 Present Value 198143 80586 65092 343820 214000 2 Present value of cash inflows Present value of cash outflows Net present value Should the company acquire this investment? 343820 330000 13820 Yes