Question

Use the NPV method to determine whether Kyler Products should invest in the following​ projects times.

	Project A costs $265,000 and offers eight annual net cash inflows of $57,000. Kyler Products requires an annual return of 12% on projects like A.
times•	Project B costs $375,000 and offers ten annual net cash inflows of $72,000 Kyler Products demands an annual return of 14 % on investments of this nature. 1. What is the NPV of Project A? 2.What is the maximum acceptable price to pay for each project? What is the profitable index of each project

Answer 1

		12.00%				14%
		NPV@ 0.12				NPV@ 0.14
Year	Project-A	PV factor	PV-Cash flow		Project-B	PV factor	PV-Cash flow
0	(265,000.00)	1.000	(265,000)		(375,000.00)	1.000	(375,000)
1	57,000.00	0.893	50,893		72,000.00	0.877	63,158
2	57,000.00	0.797	45,440		72,000.00	0.769	55,402
3	57,000.00	0.712	40,571		72,000.00	0.675	48,598
4	57,000.00	0.636	36,225		72,000.00	0.592	42,630
5	57,000.00	0.567	32,343		72,000.00	0.519	37,395
6	57,000.00	0.507	28,878		72,000.00	0.456	32,802
7	57,000.00	0.452	25,784		72,000.00	0.400	28,774
8	57,000.00	0.404	23,021		72,000.00	0.351	25,240
9	-	0.361	-		72,000.00	0.308	22,141
10	-	0.322	-		72,000.00	0.270	19,422
		NPV	18,155			NPV	560
	NPV-A	18,155
	NPV-B	560
	Maximum price acceptable for Project A is equal to PV of inflows
	Max price=	283,155
	Profitability index	PV of inflows/PV of outflows
	PI-A	=283155/265000
	PI-A	1.0685
	PI-B	=375560/375000
	PI-B	1.0015