E12-27A Calculate NPV-equal annual cash inflows (Learning Objective 4) Use the N
ID: 2510938 • Letter: E
Question
E12-27A Calculate NPV-equal annual cash inflows (Learning Objective 4) Use the NPV method to determine whether Olde West Products should invest in the following projects . Project A costs $290,000 and offers seven annual net cash inflows of S63,000. Olde West Products requires an annual return of 14% on projects like A. Project B costs $395,000 and offers ten annual net cash inflows of $71,000. Olde West Products demands an annual return of 10% on investments of this nature. Requirement What is the NPV of each project? What is the maximum acceptable price to pay for each project?Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Project A Project B Annual Cash flows 63,000.00 71,000.00 PVF at 14% for 7 Years for Project A and PVF at 10% for 10 Years for Project B 4.2883 6.1446 Total present value of cash inflows 270,163.20 436,264.26 Cash outflows 290,000.00 395,000.00 NPV = PVCI -PVCO (19,836.80) 41,264.26 Maximum Acceptable price is the present value of cash inflows as it is the maximum benefit from project 270,163.20 436,264.26 Time PVF at 14% PVF at 10% 1.00 0.8772 0.9091 2.00 0.7695 0.8264 3.00 0.6750 0.7513 4.00 0.5921 0.6830 5.00 0.5194 0.6209 6.00 0.4556 0.5645 7.00 0.3996 0.5132 8.00 0.4665 9.00 0.4241 10.00 0.3855 4.2883 6.1446
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