Phoenlx Company can Invest in each of three cheese-making projects: C1, C2, and
ID: 2606070 • Letter: P
Question
Phoenlx Company can Invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial Investment of $288,000 and would yleld the following annual cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $) (Use appropriate factorfs) from the tables provlded.) Year I Year 2 Year 3 Totala 32,000 $116,000 $200,000 116,000 116,000 348,000 $348,000 348,000 128,000 188,000 80,000 68,000 (1) Assume that the company requires a 9% 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
$ 288,000
i = 9 %
Year
Cash Inflow
x
PV Factor
Present Value
1
$ 32,000
x
0.9174
$ 29,356.80
2
$ 128,000
x
0.8417
$ 107,737.60
3
$ 188,000
x
0.7722
$ 145,173.60
Total
$ 282,268.00
Less: Cash Outflow
$ 288,000
NPV
$ (5,732.00)
Project C2
Initial Investment
$ 288,000
i =9 %
Year
Cash Inflow
x
PV Factor
Present Value
1
$ 116,000
x
0.9174
$ 106,418.40
2
$ 116,000
x
0.8417
$ 97,637.20
3
$ 116,000
x
0.7722
$ 89,575.20
Total
$ 293,630.80
Less: Cash Outflow
$ 288,000
NPV
$ 5,630.80
Project C3
Initial Investment
$ 288,000
i=9 %
Year
Cash Inflow
x
PV Factor
Present Value
1
$ 200,000
x
0.9174
$ 183,480.00
2
$ 80,000
x
0.8417
$ 67,336.00
3
$ 68,000
x
0.7722
$ 52,509.60
Total
$ 303,325.60
Less: Cash Outflow
$ 288,000
NPV
$ 15,325.60
Project C3 should be accepted as NPV is highest for project C3.
Project C1
Initial Investment
$ 288,000
i = 9 %
Year
Cash Inflow
x
PV Factor
Present Value
1
$ 32,000
x
0.9174
$ 29,356.80
2
$ 128,000
x
0.8417
$ 107,737.60
3
$ 188,000
x
0.7722
$ 145,173.60
Total
$ 282,268.00
Less: Cash Outflow
$ 288,000
NPV
$ (5,732.00)