Question

Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $270,000 and would yield the following annual cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

	C1				C2				C3
Year 1		$	26,000			$	110,000			$	194,000
Year 2			122,000				110,000				74,000
Year 3			182,000				110,000				62,000
Totals		$	330,000			$	330,000			$	330,000

1. Assume that the company requires a 10% return from its investments. Using net present value, determine which projects, if any, should be acquired.
2. Using the answer from part 1, is the internal rate of return higher or lower than 10% for Project C2?

Answer 1