Phoenlx Company can Invest in each of three cheesemaking pro

Phoenlx Company can Invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial Investment of $288,000 and would yleld the following annual cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $) (Use appropriate factorfs) from the tables provlded.) Year I Year 2 Year 3 Totala 32,000 $116,000 $200,000 116,000 116,000 348,000 $348,000 348,000 128,000 188,000 80,000 68,000 (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-)

Solution

Project C1

Initial Investment

$   288,000

i = 9 %

Year

Cash Inflow

x

PV Factor

Present Value

1

$                     32,000

x

0.9174

$        29,356.80

2

$                   128,000

x

0.8417

$      107,737.60

3

$                   188,000

x

0.7722

$      145,173.60

Total

$      282,268.00

Less: Cash Outflow

$            288,000

NPV

$        (5,732.00)

Project C2

Initial Investment

$ 288,000

i =9 %

  

Year

Cash Inflow

x

PV Factor

Present Value

1

$                  116,000

x

0.9174

$      106,418.40

2

$                  116,000

x

0.8417

$        97,637.20

3

$                  116,000

x

0.7722

$        89,575.20

Total

$      293,630.80

Less: Cash Outflow

$            288,000

NPV

$           5,630.80

Project C3

Initial Investment

$ 288,000

i=9 %

Year

Cash Inflow

x

PV Factor

Present Value

1

$                   200,000

x

0.9174

$      183,480.00

2

$                     80,000

x

0.8417

$        67,336.00

3

$                     68,000

x

0.7722

$        52,509.60

Total

$      303,325.60

Less: Cash Outflow

$            288,000

NPV

$        15,325.60

Project C3 should be accepted as NPV is highest for project C3.

Project C1
Initial Investment	$   288,000
i = 9 %
Year	Cash Inflow	x	PV Factor	Present Value
1	$                     32,000	x	0.9174	$        29,356.80
2	$                   128,000	x	0.8417	$      107,737.60
3	$                   188,000	x	0.7722	$      145,173.60
	Total		$      282,268.00
	Less: Cash Outflow		$            288,000
	NPV		$        (5,732.00)