Problem 24-1A (Part Level Submission) Compute the net present value for each pro

Question

Problem 24-1A (Part Level Submission)

Compute the net present value for each project. (Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Problem 24-1A (Part Level Submission)

U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.
Project Bono Project Edge Project Clayton Capital investment $164,800 $180,250 $204,000 Annual net income: Year  1 14,420 18,540 27,810         2 14,420 17,510 23,690         3 14,420 16,480 21,630         4 14,420 12,360 13,390         5 14,420 9,270 12,360 Total $72,100 $74,160 $98,880
Depreciation is computed by the straight-line method with no salvage value. The company’s cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)

Explanation / Answer

Answer:- The net present value of Project Bono is -$116461.

The net present value of Project Edge is -$128632.

The net present value of Project Clayton is -$133861.

Explanation:-

Net present value of Project Bono = Present value of cash inflows – Total outflows

     ={($14420*3.3522) - $164800}

     =$48339 - $164800

     = -$116461

Net present value of Project Edge = Present value of cash inflows – Total outflows

={($18540*.870)+ ($17510*.756)+ ($16480*.658)+ ($12360*.572)+    ($9270*.497) - $180250}

=($16130+$13238+$10844+$7070+$4607) - $180520

= $51888-$180520

= -$128632

Net present value of Project Clayton = Present value of cash inflows – Total outflows

={($27810*.870)+ ($23690*.756)+ ($21630*.658)+ ($13390*.572)+    ($12360*.497) - $204000}

=($25369+$18779+$14923+$8031+$6441) - $204000

= $70139-$204000

= -$133861

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