Question

The following capital expenditure projects have been proposed for management's consideration at Scott Inc. for the upcoming budget year: Use Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)

		Project
	Year(s)		A				B				C				D				E
Initial investment	0		$	(61,000	)		$	(72,000	)		$	(137,000	)		$	(150,000	)		$	(288,000	)
Amount of net cash return	1			12,800				0				46,100				14,400				87,000
	2			12,800				0				46,100				28,800				87,000
	3			12,800				28,800				46,100				43,200				44,000
	4			12,800				28,800				46,100				57,600				44,000
	5			12,800				28,800				46,100				72,000				44,000
Per year	6-10			12,800				17,300				0				0				44,000
NPV (13% discount rate)			$	8,456			$	?			$	?			$	?			$	22,487
Present value ratio				1.14				?				?				?				?

a. Calculate the net present value of projects B, C, and D, using 13% as the cost of capital for Scott Inc. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

Answer 1

PROJECT B
The present vaue of cash inflows
year	cash flows	PV@13%	PV of Cash flows
1	0	0.8850	-
2	0	0.7831	-
3	28800	0.6931	19,961
4	28800	0.6133	17,663
5	28800	0.5428	15,633
6	17300	0.4803	8,309
7	17300	0.4251	7,354
8	17300	0.3766	6,515
9	17300	0.3329	5,759
10	17300	0.2946	5,097
			86,291	$ 86,291
Less. Present Value of Cash Outflows				-$ 72,000
NPV				$ 14,291
PROJECT C
The present vaue of cash inflows				$ 162,143
46100 X PVA(13%,5), =46100 x 3.5172
Less . Present Vaue of Cash Outflows				-$ 137,000
NPV				$ 25,143
PROJECT D
The present vaue of cash inflows
year	cash flows	PV@13%	PV of Cash flows
1	14400	0.8850	12,744
2	28800	0.7831	22,553
3	43200	0.6931	29,942
4	57600	0.6133	35,326
5	72000	0.5428	39,082
			139,647	$ 139,647
Less . Present Vaue of Cash Outflows				-$ 150,000
NPV				-$ 10,353

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