Question

Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $336,000 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.) ci c2 C3 Year 1 $ 48,000 $132,000 $216,000 Year 2 144,000 132,000 96,000 Year 3 204,000 132,000 84,000 Totals $396,000 $396,000 $396,000 (1) Assume that the company requires a 8% retum 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.) CE Project C1 Initial Investment Chart Values are Based on: i= 8% Year Cash PV Inflow Factor 1 48.000 x 0.9259 2. 144.000 0.8573 3 204.000 x 0.7938 Present Value 44 443 123,451 161,935 $ 329,829 Present value of cash inflows $ 329,829 het present value Should the company acquire this investment? $ 6,171 Yes Project C2 Initial Investment Year Cash PV Inflow Factor 1 132.000 0.9259 2 132.000 X 08573 3 132.000 x 0.7938 Present Value 122.219 113,164 104,762 $ 340,165 Present value of cash intown 340,165 Whet present value Should the company acquire this investment? Projects Initial Investment Year PV 2 acter 1 2 Present

Answer 1

Project C1
Initial Investment	336000
i	8%
Year	Cash Inflow	PV Factor	PV
1	48000	0.9259	44443.2
2	144000	0.8573	123451.2
3	204000	0.7938	161935.2
	Present value of cash inflows		329829.6
	Less: Initial Investment		336000
	NPV		-6170.4
	Should acquire?		No
Project C2
Initial Investment	336000
i	8%
Year	Cash Inflow	PV Factor	PV
1	132000	0.9259	122218.8
2	132000	0.8573	113163.6
3	132000	0.7938	104781.6
	Present value of cash inflows		340164
	Less: Initial Investment		336000
	NPV		4164
	Should acquire?		Yes
Project C3
Initial Investment	336000
i	8%
Year	Cash Inflow	PV Factor	PV
1	216000	0.9259	199994.4
2	96000	0.8573	82300.8
3	84000	0.7938	66679.2
	Present value of cash inflows		348974.4
	Less: Initial Investment		336000
	NPV		12974.4
	Should acquire?		Yes

Projects with positive NPV must be accepted while those with negative NPV should be rejected