Calculate NPV—rank projects using present value ratios The following capital PI 6.28 expenditure projects have been proposed for management’s consideration at Heard, LO 6 Inc., for the upcoming budget year:

Project Initial Year(s)

A B

c D

E investment . . . .

Amount of

. . 0

$(50,000)

$(50,000)

$(100,000)

$(100,000)

$(200,000)

net cash return . .

. . 1 10,000 0

32,000 10,000 60,000

. . 2 10,000 0

32,000 20,000 60,000

. . 3 10,000 20,000 32,000 30,000 30,000

. . 4 10,000 20,000 32,000 40,000 30,000

. . 5 10,000 20,000 32,000 50,000 30,000 Peryear.

NPV (14%

. . 6-10 10,000 12,000 0

0 30,000 discount rate) . ..

$ 2,161

$ ?

$ ?

$ ?

$ 5,884 Present value ratio .

1.04

?

?

?

?

Required:

a. Calculate the net present value of projects B, C, and D, using 14% as the cost of capital for Heard, Inc.

b. Calculate the present value ratio for projects B, C, D, and E.

c. Which projects would you recommend for investment if the cost of capital is 14% and 1. $100,000 is available for investment?

2. $300,000 is available for investment?

3. $500,000 is available for investment?

d. What additional factors (beyond those considered in parts a-c might influence your project rankings?