In: Finance
Citco Company is considering investing up to $495,000 in a
sustainability-enhancing project. Its managers have narrowed their
choices to three potential projects.
Project A would redesign the production process to recycle raw
materials waste back into the production cycle, saving on direct
materials costs and reducing the amount of waste sent to the
landfill.
Project B would remodel an office building, utilizing solar panels
and natural materials to create a more energy-efficient and healthy
work environment.
Project C would build a new training center in an underserved
community, providing jobs and economic security for the local
community.
Required:
1. Assuming the cost of capital is 11%,
complete the table below by computing the payback period, NPV,
Profitability Index, and Internal Rate of Return. (Future Value of
$1, Present Value of $1, Future Value Annuity of $1, Present Value
Annuity of $1.) (Use appropriate factor(s) from the tables
provided. Do not round intermediate calculations. Negative amount
should be indicated by minus sign. Round your "NPV" answers to
whole nearest dollar amounts. Round your "PI" and "IRR" answers to
2 decimal places.)
|
Project A | Project B | Project C | |
Year | (Redesign production process) | (Remodel office building) | (New training facility) |
0 | ($495,000) | ($528,000) | ($328,000) |
1 | $99,000 | $66,000 | $82,000 |
2 | $99,000 | $66,000 | $82,000 |
3 | $99,000 | $66,000 | $82,000 |
4 | $99,000 | $66,000 | $82,000 |
5 | $99,000 | $66,000 | $82,000 |
6 | $99,000 | $66,000 | $115,000 |
7 | $99,000 | $66,000 | |
8 | $173,000 | $66,000 | |
9 | $66,000 | ||
10 | $142,000 | ||
NPV | $46,576.71 | ($112,544.67) | $36,547.25 |
PI | 1.09 | 0.79 | 1.11 |
IRR | 13.44% | 6.01% | 14.63% |
WORKINGS