Phoenix Company can invest in each of three cheese-making projects: C1, C2, and
ID: 2484608 • 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 $252,000 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. Negative amounts should be indicated by a minus sign.)
Assuming that the company requires a 10% return from its investments, use net present value to determine which projects, if any, should be acquired. (Round your answers to the nearest whole dollar.)
C1 C2 C3 Year 1 $ 20,000 $ 104,000 $ 188,000 Year 2 116,000 104,000 68,000 Year 3 176,000 104,000 56,000 Totals $ 312,000 $ 312,000 $ 312,000Explanation / Answer
Initial Investment
1
(252,000)
Project C1
year
CashFlow
PV Factor@ 10%
PV
1
20,000
0.9091
18,182
2
116,000
0.8264
95,868
3
176,000
0.7513
132,231
PV
246,281
Less Initial Investment
(252,000)
NPV
(5,719)
Initial Investment
1
(252,000)
Project C2
year
CashFlow
PV Factor@ 10%
PV
1
104,000
0.9091
94,545.45
2
104,000
0.8264
85,950.41
3
104,000
0.7513
78,136.74
NPV
258,632.61
PV
422,720
Less Initial Investment
(252,000)
NPV
170,720
Initial Investment
1
(252,000)
Project C3
year
CashFlow
PV Factor@ 10%
PV
1
188,000
0.9091
170,909.09
2
68,000
0.8264
56,198.35
3
56,000
0.7513
42,073.63
NPV
269,181.07
PV
367,453
Less Initial Investment
(252,000)
NPV
115,453
Initial Investment
1
(252,000)
Project C1
year
CashFlow
PV Factor@ 10%
PV
1
20,000
0.9091
18,182
2
116,000
0.8264
95,868
3
176,000
0.7513
132,231
PV
246,281
Less Initial Investment
(252,000)
NPV
(5,719)