Question

# [The following information applies to the questions displayed below.] The following capital expenditure projects have been...

[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.)

References

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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

References

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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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