11. Phoenix Company can invest in each of three cheese-making projects: C1, C2,
ID: 2601055 • Letter: 1
Question
11.
Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $282,000 and would yield the following annual cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
(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
Initial Investment $2,82,000 Chart values are based on : I = 9% Project - C1 (A) (B) (C) (B X C) Year Cash Flow PV Factor Present Value 1 30,000 0.9174 27,523 2 126,000 0.8417 106,052 3 186,000 0.7722 143,626 342,000 277,201 Present Value 277,201 Less: Cash Outflow 282,000 Net Present Value -4799 Project - C2 (A) (B) (C) (B X C) Year Cash Flow PV Factor Present Value 1 114,000 0.9174 104,587 2 114,000 0.8417 95,952 3 114,000 0.7722 88,029 342,000 288,568 Present Value 288,568 Less: Cash Outflow 282,000 Net Present Value 6,568 Project - C3 (A) (B) (C) (B X C) Year Cash Flow PV Factor Present Value 1 198,000 0.9174 181,651 2 78,000 0.8417 65,651 3 66,000 0.7722 50,964 342,000 298,267 Present Value 298,267 Less: Cash Outflow 282,000 Net Present Value 16,267 Hence, Project- C3, should be aquired because it have higher Net Present value i.e. $16,267.
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