1 answer

Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project...

Question:

Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investmeProject C1 Initial Investment Chart Values are Based on: Year Cash Inflow X PV Factor - Present Value Project C2 Initial InveProject C2 Initial Investment Year Cash Inflow X PV Factor = Present Value Project C3 Initial Investment Year Cash Inflow X PProject C3 Initial Investment Year Cash Inflow 1 X PV Factor = Present Value

Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $258,000 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.) Year 1 Year 2 Year 3 C1 $ 22,000 118,000 178,000 $318,000 C2 $ 106,000 106,000 106,000 $318,000 C3 $190.000 70,000 58,000 $318,000 Totals (1) Assume that the company requires a 10% 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.) Project C1 Initial Investment Chart Values are Based on: Cash Inflow X PV Factor = Present Value Year 1
Project C1 Initial Investment Chart Values are Based on: Year Cash Inflow X PV Factor - Present Value Project C2 Initial Investment Year Cash Inflow X PV Factor - Present Value
Project C2 Initial Investment Year Cash Inflow X PV Factor = Present Value Project C3 Initial Investment Year Cash Inflow X PV Factor = Present Value
Project C3 Initial Investment Year Cash Inflow 1 X PV Factor = Present Value

Answers

Project C1
Initial Investment = $     2,58,000
Chart values are based on:
i= 10%
Year Cash Inflow X P.V Factor = Present Value
1 $       22,000 X 0.9091 = $             20,000
2 $    1,18,000 X 0.8264 = $             97,521
3 $    1,78,000 X 0.7513 = $         1,33,734
$         2,51,255
Present Value of Cash Inflow = $     2,51,255
Present Value of Cash Outflow = $     2,58,000
Net Present Value = $         -6,745
Project acquired or not = No
Project C2
Initial Investment = $     2,58,000
Chart values are based on:
i= 10%
Year Cash Inflow X P.V Factor = Present Value
1 $    1,06,000 X 0.9091 = $             96,364
2 $    1,06,000 X 0.8264 = $             87,603
3 $    1,06,000 X 0.7513 = $             79,639
$         2,63,606
Present Value of Cash Inflow = $     2,63,606
Present Value of Cash Outflow = $     2,58,000
Net Present Value = $           5,606
Project acquired or not = Yes
Project C3
Initial Investment = $     2,58,000
Chart values are based on:
i= 10%
Year Cash Inflow X P.V Factor = Present Value
1 $    1,90,000 X 0.9091 = $         1,72,727
2 $       70,000 X 0.8264 = $             57,851
3 $       58,000 X 0.7513 = $             43,576
$         2,74,155
Present Value of Cash Inflow = $     2,74,155
Present Value of Cash Outflow = $     2,58,000
Net Present Value = $        16,155
Project acquired or not = Yes
.

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