Answered: Phoenix Company is considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $270,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Net cash flows	Project C1	Project C2
Year 1	$ 26,000	$ 110,000
Year 2	122,000	110,000
Year 3	182,000	110,000
Totals	$ 330,000	$ 330,000

a. The company requires a 10% 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 10% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question.

Complete this question by entering your answers in the tabs below.
Required A Required B
Using the answer from part a, is the internal rate of return higher or lower than 10% for (i) Project C1 and (ii) Project
C2? Hint: It is not necessary to compute IRR to answer this question.
(i) Is the internal rate of return higher or lower than 10% for Project C1?
(ii) is the internal rate of return higher or lower than 10% for Project C2?

Complete this question by entering your answers in the tabs below.
Required A Required B
The company requires a 10% 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. (Negative net present values should be indicated with a
minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar.)
Project C1
Year 1
Year 2
Year 3
Totals
Project C2
Year 1
Year 2
Year 3
Totals
Net Cash Flows x
Net Cash Flows
Which projects, if any, should be accepted
x
Present Value
of 1 at 10%
Present Value
of 1 at 10%
=
=
Present Value of
Net Cash Flows
Present Value of
Net Cash Flows

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