Phoenix Company can invest in each of three cheese-making projects: C1, C2, and
ID: 2400969 • Letter: P
Question
Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $270,000 and would yield the following annual cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) C1 C2 C3 Year 1 Year 2 Year 3 Totals 74,000 62,000 $330,000 330,000 $330,000 26,000 ?110,000 $194,000 110,000 110,000 122,000 182,00e (1) Assume that the company requires a 10% return from its investments. Using net present value, determine which projects, if any should be acquired. (Negative net present values should be indicated with a minus sign. Round your answers to the nearest whole dollar.)Explanation / Answer
Project C1
Initial Investment
$ 270,000.00
Chart values are based on
i=
10%
Year
Cash Inflow
x
Pv Factor
=
Present Value
1
$ 26,000
0.9091
$ 23,636
2
$ 122,000
0.8264
$ 100,826
3
$ 182,000
0.7513
$ 136,739
$ 261,202
Present value of cash Inflows
$ 261,202
Present value of Cash Outflow
$ 270,000
Net Present Value
$ (8,798)
Should the Company Acquire this Investment
No
Project C2
Initial Investment
$ 270,000.00
Chart values are based on
i=
10%
Year
Cash Inflow
x
Pv Factor
=
Present Value
1
$ 110,000
0.9091
$ 100,000
2
$ 110,000
0.8264
$ 90,909
3
$ 110,000
0.7513
$ 82,645
$ 273,554
Present value of cash Inflows
$ 273,554
Present value of Cash Outflow
$ 270,000
Net Present Value
$ 3,554
Should the Company Acquire this Investment
No*
Project C3
Initial Investment
$ 270,000.00
Chart values are based on
i=
10%
Year
Cash Inflow
x
Pv Factor
=
Present Value
1
$ 194,000
0.9091
$ 176,364
2
$ 74,000
0.8264
$ 61,157
3
$ 62,000
0.7513
$ 46,582
$ 284,102
Present value of cash Inflows
$ 284,102
Present value of Cash Outflow
$ 270,000
Net Present Value
$ 14,102
Should the Company Acquire this Investment
Yes*
Note * Investment C3 also have a Positive net present value but since C3 has more Net present value than C2,and C3 is selected while c2 is rejected.
Project C1
Initial Investment
$ 270,000.00
Chart values are based on
i=
10%
Year
Cash Inflow
x
Pv Factor
=
Present Value
1
$ 26,000
0.9091
$ 23,636
2
$ 122,000
0.8264
$ 100,826
3
$ 182,000
0.7513
$ 136,739
$ 261,202
Present value of cash Inflows
$ 261,202
Present value of Cash Outflow
$ 270,000
Net Present Value
$ (8,798)
Should the Company Acquire this Investment
No