[The following information applies to the questions displayed below.]
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 (12% discount rate) | $ | 8,456 | $ | ? | $ | ? | $ | ? | $ | 22,487 | |||||||||||
| Present value ratio | 1.14 | ? | ? | ? | ? | ||||||||||||||||
rev: 12_21_2016_QC_CS-72735
2.
value:
5.00 points
Required information
Required:
a. Calculate the net present value of projects B, C, and D, using 12% as the cost of capital for Scott, Inc. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)
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3.
value:
3.00 points
Required information
b. Calculate the present value ratio for projects B, C, D, and E. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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4.
value:
1.00 points
Required information
Which projects would you recommend for investment if the cost of capital is 12% and
c-1. $145,000 is available for investment?
Project A
Project B
Project C
Project D
Project E
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5.
value:
2.00 points
Required information
c-2. $438,000 is available for investment? (Select all that apply.)
Project A
Project B
Project C
Project D
Project E
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6.
value:
2.00 points
Required information
c-3. $724,000 is available for investment? (Select all that apply.)
Project A
Project B
Project C
Project D
Project E
a.NPV for project B
= 28,800*PVF(12%, 3years) + 28,800*PVF(12%, 4years)+ 28,800*PVF(12%, 5years) + 17,300*PVAF(12%, 6-10 years) – 72,000
= 28,800*0.712 + 28,800*0.636 + 28,800*0.567 + 17,300*2.045 – 72,000
= $18,530.5
Present Value Ratio = 1.26
Project C = 46,100*PVAF(12%, 5 years) – 137,000
= $29,191
PV Ratio = 1.21
Project D = 14,400*0.893 + 28,800*0.797 + 43,200*0.712 + 57,600*0.636 + 72,000*567 – 150,000
= (5,971.2)
Project E : PV ratio = 1.08
Note: Present Value ratio = Present value of cash inflows/Initial investment
c-1
Available funds = $145,000
Select Project c
c-2
Funds = $438,000
Select A, B and C
c-3
Select A, B, C and E
Do not select D in any case since its NPV is negative
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