Phoenix Company can invest in each of three cheese-making projects: C1, C2, and
ID: 2529140 • 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 $234,000 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
$
14,000
$
98,000
$
182,000
Year 2
110,000
98,000
62,000
Year 3
170,000
98,000
50,000
Totals
$
294,000
$
294,000
$
294,000
(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.)
C1
C2
C3
Year 1
$
14,000
$
98,000
$
182,000
Year 2
110,000
98,000
62,000
Year 3
170,000
98,000
50,000
Totals
$
294,000
$
294,000
$
294,000
Project C1 Initial Investment Chart Values are Based on: YearCash Inflow xPV Factor Present Value 2Explanation / Answer
PROJECT C1
Initial Investment
$2,34,000
I
10%
Year
Cash Flow
Present Value Factor
Present Value
1
$14,000
0.909
12726
2
$110000
0.826
90860
3
$170000
0.751
127670
231256
Less : Initial Investment
234000
Net Present Value
- $2,744
(Negative)
PROJECT C2
Initial Investment
$2,34,000
I
10%
Year
Cash Flow
Present Value Factor
Present Value
1
98000
0.909
89082
2
98000
0.826
80948
3
98000
0.751
73598
243628
Less : Initial Investment
234000
Net Present Value
$9628
PROJECT C3
Initial Investment
$2,34,000
I
10%
Year
Cash Flow
Present Value Factor
Present Value
1
182000
0.909
165438
2
62000
0.826
51212
3
50000
0.751
37550
254200
Less : Initial Investment
234000
Net Present Value
$20200
The NPV of PROJECT C2 and PROJECT C3 is Positive, Therefore, PROJECT C2 and C3 should be selected
PROJECT C1
Initial Investment
$2,34,000
I
10%
Year
Cash Flow
Present Value Factor
Present Value
1
$14,000
0.909
12726
2
$110000
0.826
90860
3
$170000
0.751
127670
231256
Less : Initial Investment
234000
Net Present Value
- $2,744
(Negative)