(Ignore income taxes in this problem.) Monson Company is considering three investment opportunities with cash flows...

(Ignore income taxes in this problem.) Monson Company is considering three investment opportunities with cash flows as described below: Required: Compute the net present value of each project assuming Monson Company uses a 12% discount rate. Which Project should Monson choose and why?

Project A:
Cash investment now $ 15,000
Cash inflow at the end of 5 years $ 21,000
Cash inflow at the end of 8 years $ 21,000
Project B:
Cash investment now $ 11,000
Annual cash outflow for 5 years $ 3,000
Additional cash inflow at the end of 5 years $ 21,000
Project C:
Cash investment now $ 21,000
Annual cash inflow for 4 years $ 11,000
Cash outflow at the end of 3 years $ 5,000
Additional cash inflow at the end of 4 years $ 15,000

Required:

Compute the net present value of each project assuming Monson Company uses a 12% discount rate. Which Project should Monson choose and why?

Expert Solution

NPV for Project A
Year	Amount	PVF@12%	PV
0	-15000	1.0000	-15000
5	21000	0.5674	11915.97
8	21000	0.4039	8481.543

NPV			5397.51

NPV for Project B
Year	Amount	PVF@12%	PV
0	-11000	1.0000	-11000
1	-3000	0.8929	-2678.57
2	-3000	0.7972	-2391.58
3	-3000	0.7118	-2135.34
4	-3000	0.6355	-1906.55
5	18000	0.5674	10213.68
NPV			-9898.36

NPV for Project C
Year	Amount	PVF@12%	PV
0	-21000	1.0000	-21000
1	11000	0.8929	9821.429
2	11000	0.7972	8769.133
3	6000	0.7118	4270.681
4	26000	0.6355	16523.47
NPV			18384.71

Project -C should be choosen because NPV is higher as compar eto other project

ekkarill92 answered 2 years ago

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