Capital rati na NPV approach A firm with a 132 cost of capit

Capital rati na NPV approach A firm with a 132% cost of capital must select the optimal group of pro ects from those shown in the lollowing table, g en its capital budget of $1.10 million NPV at 13.2% Project Initial investment cost of 200,000 200,000 700,000 500,000 300,000 600,000 $88,000 15,000 34,000 91,000 62,000 59,000 168,000 a. Calculate the present value of cash inflows associated with each project b. Select the optimal group of projects, keeping in mind that unused funds are costly a. Calculate the present value of cash inflows associated with each project The present value of cash inflows for project A is Round to the nearest dollar) The present value of cash intlows for project B is $(Round to the nearest dolla) The present value of cash inflows for project C is S?

Solution

The present value of the cash inflows for the project A is              $288,000

The present value of the cash inflows for the project B is              $215,000

The present value of the cash inflows for the project C is               $234,000

The present value of the cash inflows for the project D is              $791,000

The present value of the cash inflows for the project E is               $562,000

The present value of the cash inflows for the project F is               $359,000

The present value of the cash inflows for the project G is              $768,000

Working:

Project

Initial investment

NPV

Present value of inflows

#

I

NPV

PV = I + NPV

A

$200,000

$88,000

$288,000

B

$200,000

$15,000

$215,000

C

$200,000

$34,000

$234,000

D

$700,000

$91,000

$791,000

E

$500,000

$62,000

$562,000

F

$300,000

$59,000

$359,000

G

$600,000

$168,000

$768,000

NPV = - Initial investment + Present values of inflows

Present Value of Inflows = Initial Investment + NPV

Project	Initial investment	NPV	Present value of inflows
#	I	NPV	PV = I + NPV
A	$200,000	$88,000	$288,000
B	$200,000	$15,000	$215,000
C	$200,000	$34,000	$234,000
D	$700,000	$91,000	$791,000
E	$500,000	$62,000	$562,000
F	$300,000	$59,000	$359,000
G	$600,000	$168,000	$768,000