Question

The following capital expenditure projects have been proposed for management's consideration at Scott Inc. for the upcoming budget year: Use Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) Project Year(s) $ (75,000) Initial investment Amount of net cash return min $(68,000) 16,000 16,000 16,000 16,000 16,000 16,000 $ 6,538 1.1 $(154,000) 57,000 57,000 57,000 57,000 57,000 $(172,000) 17,200 34,400 51,600 68,800 86,000 36,000 36,000 36,000 21,000 ? $ (344,000) 105,000 105,000 60,000 60,000 60,000 60,000 $ 6,856 6-10 Per year NPV (14% discount rate) Present value ratio $ $ ? $ ? 3. $852,000 is available for investment? (You may select more than one answer. Single click the box with the question mark to oduce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. ny boxes left with a question mark will be automatically graded as incorrect.) Project A Project B Project C Project D Project E

Answer 1

Present Value = NPV + Investment
Present Value Ratio = Present Value / Investment

Project	PV	Investment	PV Ratio	Rank
A	$        74,538	$               68,000	1.1	3
B	$    1,01,755	$               75,000	1.4	1
C	$    1,95,692	$            1,54,000	1.3	2
D	$    1,61,794	$            1,72,000	0.9	5
E	$    3,50,856	$            3,44,000	1.0	4

Projects are ranked on the basis of highest PV Ratio

Since Project B has highest PV Ratio, investment will be made in Project B first