Question

1. Donahue Industries Inc. wishes to evaluate three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows:

   		Product Line Expansion		Distribution Facilities		Computer Network
   Amount to be invested		$790,052		$535,506		$310,018
   Annual net cash flows:
   	Year 1	413,000		301,000		186,000
   	Year 2	384,000		271,000		128,000
   	Year 3	351,000		241,000		93,000

   Present Value of $1 at Compound Interest
   Year	6%	10%	12%	15%	20%
   1	0.943	0.909	0.893	0.870	0.833
   2	0.890	0.826	0.797	0.756	0.694
   3	0.840	0.751	0.712	0.658	0.579
   4	0.792	0.683	0.636	0.572	0.482
   5	0.747	0.621	0.567	0.497	0.402
   6	0.705	0.564	0.507	0.432	0.335
   7	0.665	0.513	0.452	0.376	0.279
   8	0.627	0.467	0.404	0.327	0.233
   9	0.592	0.424	0.361	0.284	0.194
   10	0.558	0.386	0.322	0.247	0.162

   Required:

   1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each project. Use the present value of $1 table presented above in your computations. If the net present value is negative, enter a negative amount.

   	Product Line Expansion		Distribution Facilities		Computer Network
   Present value of net cash flow total	$		$		$
   Amount to be invested
   Net present value	$		$		$

   2. Determine a present value index for each proposal. Round your answers to two decimal places.

   	Present Value Index (Rounded)
   Product Line Expansion
   Distribution Facilities
   Computer Network

Answer 1

Donahue industries Inc.
Calculation of Net Present Value - product line expansion
Initial Investment =	790052
Chart values :-
I = 20 %
Year	Cash inflow	PV factor	PV of Cash flow
1	413000	0.833	344029
2	384000	0.694	266496
3	351000	0.579	203229
			813754
PV OF CASH INFLOWS		813754
LESS:- INITIAL INVESTMENT	790052
	NPV	23702
Calculation of Net Present Value - Distribution facilities
Initial Investment =	535506
Chart values :-
I = 20 %
Year	Cash inflow	PV factor	PV of Cash flow
1	301000	0.833	250733
2	271000	0.694	188074
3	241000	0.579	139539
			578346
PV OF CASH INFLOWS		578346
LESS:- INITIAL INVESTMENT	535506
	NPV	42840
Calculation of Net Present Value - computer network
Initial Investment =	310018
Chart values :-
I = 20 %
Year	Cash inflow	PV factor	PV of Cash flow
1	186000	0.833	154938
2	128000	0.694	88832
3	93000	0.579	53847
			297617
PV OF CASH INFLOWS		297617
LESS:- INITIAL INVESTMENT	310018
	NPV	-12401
PV index =
	product line expansion	Distribution facilities	computer network
PV of annual NCF	813754	578346	297617
divided by Invstmt.	790052	535506	310018
PV index	1.030000557	1.079999104	0.959999097