Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $330,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Net cash flows Year 1 Year 2 Year 3 Totals Project C1 $ 46,000 142,000 202,000 $ 390,000 Project C2 $ 130,000 130,000 130,000 $ 390,000 a. The company requires a 8% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted. b. Using the answer from part a, is the internal rate of return higher or lower than 8% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question. Project C1 Net Cash Flows X Present Value of 1 at 8% Year 1 Year 2 Year 3 Totals Present Value Project C2 Net Cash Flows X of 1 at 8% Year 1 Year 2 Year 3 Totals Which projects, if any, should be accepted Present Value of Net Cash Flows ။ 11 = IF Present Value of Net Cash Flows
Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $330,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Net cash flows Year 1 Year 2 Year 3 Totals Project C1 $ 46,000 142,000 202,000 $ 390,000 Project C2 $ 130,000 130,000 130,000 $ 390,000 a. The company requires a 8% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted. b. Using the answer from part a, is the internal rate of return higher or lower than 8% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question. Project C1 Net Cash Flows X Present Value of 1 at 8% Year 1 Year 2 Year 3 Totals Present Value Project C2 Net Cash Flows X of 1 at 8% Year 1 Year 2 Year 3 Totals Which projects, if any, should be accepted Present Value of Net Cash Flows ။ 11 = IF Present Value of Net Cash Flows
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $330,000 and would yield the
following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1)
Note: Use appropriate factor(s) from the tables provided.
Net cash flows
Year 1
Year 2
Year 3
Totals
Project C1
$ 46,000
142,000
202,000
$ 390,000
Project C2
$ 130,000
130,000
130,000
$ 390,000
a. The company requires a 8% return from its investments. Compute net present values using factors from Table B.1 in Appendix B
to determine which projects, if any, should be accepted.
b. Using the answer from part a, is the internal rate of return higher or lower than 8% for (i) Project C1 and (ii) Project C2? Hint: It is
not necessary to compute IRR to answer this question.
Transcribed Image Text:Project C1
Net Cash Flows
X
Present Value
of 1 at 8%
Year 1
Year 2
Year 3
Totals
Present Value
Project C2
Net Cash Flows
X
of 1 at 8%
Year 1
Year 2
Year 3
Totals
Which projects, if any, should be accepted
Present Value of
Net Cash Flows
။
11
=
IF
Present Value of
Net Cash Flows
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