Phoenix Company can invest in each of three cheese-making projects C1, C2, and C

Question

Phoenix Company can invest in each of three cheese-making projects C1, C2, and C3. Each project requires an intial investment of $306,000 and would yield the following annual cash flows (PV of S1. FV of $1. PVA of S1, and EVA of S1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign.) Year 1 Year 2 Year 3 C2 38,000 $122,000 $206,000 134,000 122,000 86,000 194,000 122,000 74,000 Totals $366,000 $366,000 $366,000 (1 Assuming that the company requires a 9% 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.) Project C1 Initial Investment Chart Values are Based on Year Cash Inflow x PV Factor Present Value

Explanation / Answer

Project C3 should be accepted.

Project C1 Year 0 Year 1 Year 2 Year 3 Total Amount to be invested -306,000 -306000 Cash Inflow 38,000 134,000 194,000 366000 Net cash flow (a) -306,000 38,000 134,000 194,000 60,000 Life 3 years Rate of Return is 9% Present Value factor (b) 1 0.917 0.842 0.772 Present Value of Net Cash flow (a*b) -306,000 34,862 112,785 149,804 -8,549 Project C2 Year 0 Year 1 Year 2 Year 3 Total Amount to be invested -306,000 -306000 Cash Inflow 122,000 122,000 122,000 366000 Net cash flow (a) -306,000 122,000 122,000 122,000 60,000 Life 3 years Rate of Return is 9% Present Value factor (b) 1 0.917 0.842 0.772 Present Value of Net Cash flow (a*b) -306,000 111,927 102,685 94,206 2,818 Project C3 Year 0 Year 1 Year 2 Year 3 Total Amount to be invested -306,000 -306000 Cash Inflow 206,000 86,000 74,000 366000 Net cash flow (a) -306,000 206,000 86,000 74,000 60,000 Life 3 years Rate of Return is 9% Present Value factor (b) 1 0.917 0.842 0.772 Present Value of Net Cash flow (a*b) -306,000 188,991 72,384 57,142 12,517

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---