Capital rati na NPV approach A firm with a 132% cost of capital must select the
ID: 2823951 • Letter: C
Question
Capital rati na NPV approach A firm with a 132% cost of capital must select the optimal group of pro ects from those shown in the lollowing table, g en its capital budget of $1.10 million NPV at 13.2% Project Initial investment cost of 200,000 200,000 700,000 500,000 300,000 600,000 $88,000 15,000 34,000 91,000 62,000 59,000 168,000 a. Calculate the present value of cash inflows associated with each project b. Select the optimal group of projects, keeping in mind that unused funds are costly a. Calculate the present value of cash inflows associated with each project The present value of cash inflows for project A is Round to the nearest dollar) The present value of cash intlows for project B is $(Round to the nearest dolla) The present value of cash inflows for project C is S?Explanation / Answer
The present value of the cash inflows for the project A is $288,000
The present value of the cash inflows for the project B is $215,000
The present value of the cash inflows for the project C is $234,000
The present value of the cash inflows for the project D is $791,000
The present value of the cash inflows for the project E is $562,000
The present value of the cash inflows for the project F is $359,000
The present value of the cash inflows for the project G is $768,000
Working:
Project
Initial investment
NPV
Present value of inflows
#
I
NPV
PV = I + NPV
A
$200,000
$88,000
$288,000
B
$200,000
$15,000
$215,000
C
$200,000
$34,000
$234,000
D
$700,000
$91,000
$791,000
E
$500,000
$62,000
$562,000
F
$300,000
$59,000
$359,000
G
$600,000
$168,000
$768,000
NPV = - Initial investment + Present values of inflows
Present Value of Inflows = Initial Investment + NPV
Project
Initial investment
NPV
Present value of inflows
#
I
NPV
PV = I + NPV
A
$200,000
$88,000
$288,000
B
$200,000
$15,000
$215,000
C
$200,000
$34,000
$234,000
D
$700,000
$91,000
$791,000
E
$500,000
$62,000
$562,000
F
$300,000
$59,000
$359,000
G
$600,000
$168,000
$768,000