Exercise 11-14 Computing and interpreting net present value and internal rate of return LO P3, P4 Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $324,000 and would yield the following annual cash flows. (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Year 1 Year 2 Year 3 Totals c1 $ 44,eee 140,000 200,000 $384,000 C2 $128,800 128,000 128,000 $384,000 C3 $212,000 92,000 80,000 $384,000 1. Assume that the company requires a 8% return from its investments. Using net present value, determine which projects, if any. should be acquired 2. Using the answer from part 1, is the internal rate of return higher or lower than 8% for Project C2? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assume that the company requires a 8% return from its investments. Using net present value, determine which projects, if anv. should be acquired. (Negative net present values should be indicated with a minussian Roundur recent value foran p=1/(1+1 TABLE B.1. Present Value of 1 Rate 9% 10% 12% 15% 8% 7% 6% 4% 5% Periods 1% 2% 3% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 25 30 35 40 0.9901 0.9803 09706 0.9610 0.9515 0.9420 0.9327 0.9235 0.9143 0.9053 0.8963 0.8874 0.8787 0.8700 0.8613 0.8528 0.8444 0.8360 0.8277 0.8195 0.7798 0.7419 0.7059 0.6717 0.9804 0.9612 0.9423 0.9238 0.9057 0.8880 0.8706 0.8535 0.8368 0.8203 0.8043 0.7885 0.7730 0.7579 0.7430 0.7284 0.7142 0.7002 0.6864 0.6730 0.6095 0.5521 0.5000 0.4529 0.9709 0.9426 0.9151 0.8885 0.8626 0.8375 0.8131 0.7894 0.7664 0.7441 0.7224 0.7014 0.6810 0.6611 0.6419 0.6232 0.6050 0.5874 0.5703 0.5537 0.4776 0.4120 0.3554 0.3066 0.9615 0.9524 0.9434 0.9246 0.9070 0.8900 0.8890 0.8638 0.8396 0.8548 0.8227 0.7921 0.8219 0.7835 0.7473 0.7903 0.7462 0.7050 0.7599 0.7107 0.6651 0.7307 0.6768 0.6274 0.7026 0.6446 0.5919 0.6756 0.6139 0.5584 0.6496 0.5847 0.5268 0.6246 0.5568 0.4970 0.6006 0.5303 0.4688 0.5775 0.5051 0.4423 0.5553 0.4810 0.4173 0.5339 0.4581 0.3936 0.5134 0.4363 0.3714 0.4936 0.4155 0.3503 0.4746 0.3957 0.3305 0.4564 0.3769 0.3118 0.3751 0.2953 0.2330 0.3083 0.2314 0.1741 0.25340.1813 0.1301 0.2083 0.1420 0.0972 0.9346 0.8734 0.8163 0.7629 0.7130 0.6663 0.6227 0.5820 0.5439 0.5083 0.4751 0.4440 0.4150 0.3878 0.3624 0.3387 0.3166 0.2959 0.2765 0.2584 0.1842 0.1314 0.0937 0.0668 0.9259 0.8573 0.7938 0.7350 0.6806 0.6302 0.5835 0.5403 0.5002 0.4632 0.4289 0.3971 0.3677 0.3405 0.3152 0.2919 0.2703 0.2502 0.2317 0.2145 0.1460 0.0994 0.0676 0.0460 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 0.5019 0.4604 0.4224 0.3875 0.3555 0.3262 0.2992 0.2745 0.2519 0.2311 0.2120 0.1945 0.1784 0.1160 0.0754 0.0490 0.0318 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394 0.2176 0.1978 0.1799 0.1635 0.1486 0.0923 0.0573 0.0356 0.0221 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606 0.3220 0.2875 0.2567 0.2292 0.2046 0.1827 0.1631 0.1456 0.1300 0.1161 0.1037 0.0588 0.0334 0.0189 0.0107 0.8696 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 0.2149 0.1869 0.1625 0.1413 0.1229 0.1069 0.0929 0.0808 0.0703 0.0611 0.0304 0.0151 0.0075 0.0037 Used to compute the present value of a known future amount. For example: How much would you need to investoday at 10 compounded semiannully to accumulak 5.000 in 6 years from today? Using the face of 12 and/-5% (12 semiannual periods and a smile of 5), the factor is 0.5568. You would need to invest $2,784 today (55.000 x 0.5568) S=(1+1) TABLE B.2 Future Value of 1 Rate 8% 12% 9% 10% 15% 6% 7% Periods 1% 2% 5% 3% 0 1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 25 30 35 40 1.0000 1.0100 1.0201 1.0303 1.0406 1.0510 1.0615 1.0721 1.0829 1.0937 1.1046 1.1157 1.1268 1.1381 1.1495 1.1610 1.1726 1.1843 1.1961 1.2081 1.2202 1.2824 1.3478 1.4166 1.4889 1.0000 1.0200 1,0404 1.0612 1.0824 1,1041 1.1262 1.1487 1.1717 1.1951 1.2190 1.2434 1.2682 1.2936 1.3195 1.3459 1.3728 1.4002 1.4282 1.4568 1.4859 1.6406 1.8114 1.9999 2.2080 1.0000 1.0300 1.0609 1.0927 1.1255 1.1593 1.1941 1.2299 1.2668 1.3048 1.3439 1.3842 1.4258 1.4685 1.5126 1.5580 1.6047 1.6528 1.7024 1.7535 1.8061 2.0938 2.4273 2.8139 3.2620 1.0000 1.0400 1.0816 1.1249 1.1699 1.2167 1.2653 1.3159 1.3686 1.4233 1.4802 1.5395 1.6010 1.6651 1.7317 1.8009 1.8730 1.9479 20258 2.1068 2.1911 2.6658 3.2434 3.9461 4.8010 1,0000 1.0500 1.1025 1.1576 1.2155 1.2763 1.3401 1.4071 1.4775 1.5513 16289 1.7103 1.7959 1.8856 1.9799 2.0789 2.1829 2.2920 2.4066 2.5270 26533 3.3864 4.3219 5.5160 7.0400 1.0000 1.0600 1.1236 1.1910 1.2625 1.3382 1.4185 1.5036 1.5938 1.6895 1.7908 1.8983 2.0122 2.1329 2.2609 2.3966 2.5404 26928 2.8543 3.0256 3.2071 4.2919 5.7435 7.6861 10.2857 1.0000 1.0700 1.1449 1.2250 1.3108 1.4026 1.5007 1.6058 1.7182 1.8385 1.9672 2.1049 2.2522 2.4098 25785 2.7590 2.9522 3.1588 3.3799 3.6165 3.8697 5.4274 7.6123 10.6766 14.9745 1.0000 1.0800 1.1664 1.2597 13605 1.4693 1.5869 1.7138 1.8509 1.9990 2.1589 2.3316 25182 27196 29372 3.1722 3.4259 3.7000 3.9960 4.3157 4.6610 6.8485 10.0627 14.7853 21.7245 1.0000 1.0900 1.1881 1.2950 1.4116 1.5386 1.6771 1.828 1.9926 2.1719 23674 2.5804 2.8127 3.0658 3.3417 3.6425 3.9703 4.3276 4.7171 5.1417 5.6044 8.6231 13.2677 20.4140 31.4094 1.0000 1.1000 1.2100 1.3310 1.4641 1,6105 1.7716 1.9487 2.1436 2.3579 2.5937 2.8531 3.1384 3.4523 3.7975 4.1772 4.5950 5.0545 5.5599 6.1159 6.7275 10.8347 17.4494 28.1024 45.2593 1.0000 1.1200 1.2544 1.4049 1.5735 1.7623 1.9738 2.2107 2.4760 2.7731 3.1058 3.4785 3.8960 4.3635 4.8871 5.4736 6.1304 6.8660 7.6900 8.6128 9.6463 17.0001 29.9599 52.7996 93.0510 1.0000 1.1500 1.3225 1.5209 1.7490 2.0114 2.3131 2.6600 3.0590 3.5179 4,0456 4.6524 5.3503 6.1528 7.0757 8.1371 9.3576 10.7613 123755 14.2318 16.3665 32.9190 66.2118 133.1755 267.8635 Used to compute the future vult of known pret amount. For example: What is the accumulated value of $3.000 invested today 81 compounded quarterly for 5 year? Using the factors of 20 and 220 quarterly periods and a quarterly interest rate of 25).the factor is 14859. The accumulated value is $4.457.70 (3.000 1.4859). TABLE B.3: Present Value of an Annuity of 1 -ao- (1 + i)" Rate 5% 9% Periods 6% 10% 8% 1% 2% 7% 12% 3% 15% 1 0.9901 2. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 25 30 35 40 1.9704 2.9410 3.9020 4.8534 5.7955 6.7282 7.6517 8.5660 9.4713 10.3676 11.2551 12.1337 13.0037 13.8651 14.7179 15.5623 16.3983 17.2260 18.0456 22.0232 25.8077 29.4086 32.8347 0.9804 1.9416 2.8839 3.8077 4.7135 5.6014 6,4720 7.3255 8.1622 8.9826 9.7868 10.5753 11.3484 12.1062 12.8493 13.5777 142919 14.9920 15.6785 16.3514 19.5235 223965 24.9986 27.3555 0.9709 1.9135 2.8286 3.7171 4.5797 5.4172 6.2303 7.0197 7.7861 8.5302 9.2526 9.9540 10.6350 11.2961 11.9379 12.5611 13.1661 13.7535 14.3238 14.8775 17.4131 19.6004 21.4872 23.1148 0.9615 0.9524 1,8861 1.8594 2.7751 2.7232 3.6299 3.5460 4.4518 4.3295 5.2421 5.0757 6.0021 5.7864 6.7327 6.4632 7.4353 7.1078 8.1109 7.7217 8.7605 8.3064 9.3851 8.8633 9.9856 9.3936 10.5631 9.8986 11.1184 10.3797 11.6523 10.8378 12.1657 11.2741 12.6593 11.6896 13.1339 12.0853 13.5903 12.4622 15.6221 14.0939 17.2920. 15.3725 18.6646 16.3742 19.7928 17.1591 0.9434 1.8334 26730 3.4651 4.2124 4.9173 5.5824 6.2098 6.8017 7.3601 7.8869 8.3838 8.8527 9.2950 9.7122 10.1059 10.4773 10.8276 11.1581 11.4699 12.7834 13.7648 14.4982 15.0463 0.9346 29259 1.8080 1.7833 26243 25771 3.3872 3.3121 4.1002 3.9927 4.7665 4.6229 5.3893 5.2064 5.97135.7466 6.5152 6.2469 7.0236 6.7101 7.4987 7.1390 7.9427 7.5361 8.3577 7.9038 8.7455 8.2442 9.1079 8.5595 9.4466 8.8514 9.7632 9.1216 10.0591 9.3719 10.3356 9.6036 10.5940 9.8181 11.6536 10.6748 12.4090 11.2578 12.9477 116546 13.3317 11.9246 0.9174 1.7591 2.5313 3.2397 3.8897 4.4859 5.0330 5.5348 5.9952 6.4177 6.8052 7.1607 7.4869 7.7862 8,0607 8.3126 8.5436 8.7556 8.9501 9.1285 9.8226 10.2737 10.5668 10.7574 0.9091 1.7355 24869 3.1699 3.7908 4.3553 4.8684 5.3349 5.7590 6.1446 6.4951 6.8137 7.1034 7.3667 7.6061 7.8237 8.0216 8.2014 8.3649 8.5136 9.0770 9.4269 9.6442 9.7791 0.8929 1.6901 24018 3.0373 3.6048 4.1114 4.5638 4.9676 5.3282 5.6502 5.9377 6.1944 6.4235 6.6282 6,8109 6.9740 7.1196 7.2497 7.3658 7.4694 7.8431 8.0552 8.1755 8.2438 0.8696 1.6257 2.2832 2.8550 3.3522 3.7845 4.1604 4.4873 4.7716 5.0188 5.2337 5.4206 5.5831 5.7245 5.8474 5.9542 6.0472 6.1280 6.1982 6.2593 6.4641 6.5660 6.6166 6.6418 Used to calculate the present value of a series of equal payments made at the end of cach period. For example: What is the present value of $2.000 per year for 10 years assuming an annual interest rate of 97 10.1 = 9, the PV factor is 64177.52.000 per year for 10 years is the equivalent of 512.835 today 52.000 X 6,4177). f=[(1 + i)" - 1]/i TABLE B.4 Future Value of an Annuity of 1 Rate 3% Periods 2% 4% 12% 1% 5% 6% 8% 9% 7% 10% 15% 1 2 3 4 5 6 7 9 10 11 12 13 14 15 16 1.0000 2.0100 3.0301 4.0604 5.1010 6.1520 7.2135 8.2857 9.3685 10.4622 11.5668 12.6825 13.8093 14.9474 16.0969 17.2579 18.4304 19.6147 20.8109 22.0190 28.2432 34.7849 41.6603 48.8864 1.0000 1.0000 2.0200 2.0300 3.0604 3.0909 4.1216 4.1836 5.2040 5.3091 6.3081 6.4684 7.4343 7.6625 8.5830 8.8923 9.7546 10.1591 10.9497 11.4639 12.1687 12.8078 13.4121 14.1920 14.6803 15.6178 15.9739 17.0863 17.2934 18.5989 18.6393 20.1569 20.0121 21.7616 21.4123 23.4144 22.8406 25.1169 24.2974 26.8704 320303 36.4593 40.5681 47.5754 49.9945 60.4621 60.4020 75.4013 1.0000 1.0000 1.0000 2.0400 2.0500 2.0600 3.1216 3.1525 3.1836 4.2465 4.3101 4.3746 5.4163 5.5256 5.6371 6.6330 6.8019 6.9753 7.8983 8.1420 8.3938 9.2142 9.5491 9.8975 10.5828 11.0266 11.4913 12.0061 12.5779 13.1808 13.4864 14.2068 14.9716 15.0258 15.9171 16 8699 16.6268 17.7130 18.8821 18.2919 19.5986 21.0151 20.0236 21.5786 23.2760 21.8245 23.6575 25.6725 23.6975 25.8404 28. 2129 25.6454 28.1324 30.9057 27.6712 30.5390 33.7600 29.7781 33.0660 36.7856 41.6459 47.7271 54.8645 56.0849 66.4388 79.0582 73.6522 90.3203 1114348 95.0255 120.7998 154.7620 1.0000 2.0700 3.2149 4.4399 5.7507 7.1533 8.6540 10.2598 11.9780 13.8164 15.7836 17.8885 20.1406 22.5505 25.1290 27.8881 30.8402 33.9990 37.3790 40.9955 63.2490 94.4608 138.2369 199 6351 1.0000 20800 3.2464 4.5061 5.8666 7.3359 8.9228 10.6366 124876 14.4866 16.6455 18.9771 21.4953 24.2149 27.1521 30.3243 33.7502 37.4502 41.4463 45.7620 73.1059 113.2832 172.3168 259.0565 1.0000 1.0000 1.0000 20900 2.1000 2.1200 3.2781 3.3100 3.3744 4.5731 4.6410 4.7793 5.9847 6.1051 6.3528 7.5233 7.7156 8.1152 9.2004 9.4872 10.0890 11.0285 11.4359 12.2997 13.0210 13.5795 14.7757 15.1929 15.9374 17.5487 17.5603 18.5312 20.6546 20.1407 21.3843 24.1331 22.9534 24.5227 28.0291 26.0192 27.9750 32.3926 29.3609 31.7725 37.2797 33.0034 35.9497 42.7533 36.9737 40.5447 48.8837 41.3013 45.5992 55.7497 46.0185 51.1591 63.4397 51.1601 57.2750 72.0524 84.7009 98.3471 133.3339 136.3075 164.4940 241.3327 215.7108 271.0244 431.6635 337.8824 442.5926 767.0914 1.0000 2.1500 3.4725 4.9934 6.7424 8.7537 11.0668 13.7268 16.7858 20.3037 24.3493 29.0017 34.3519 40.5047 47.5804 55.7175 65.0751 75.8364 88.2118 102.4436 212.7930 434 7451 881.1702 1.779.0903 18 19 20 25 30 35 40 Used to calculate the future value of a series of qual payments made at the end of each period For example: What is the future value of $4.000 per year for 6 years assuming an annual interest rate of For 6.1. the Factor is 7.3359.54000 per year for 6 years accumulates to $29343.60 54.000 X 7.3359). Required 1 Required 2 Assume that the company requires a 8% return from its investments. Using net present value, determine which projects, if any, should be acquired. (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 Initial Investment Chart Values are Based on: i = % Year Cash Inflow PV Factor Present Value 1 2 3 0 Denland Project C2 Initial Investment Year Cash Inflow PV Factor II Present Value 1 IIII 2 3 = 0 Project C3 Initial Investment Year Cash Inflow PV Factor = Present Value 1 N II III 3 Project C3 Initial Investment Year Cash Inflow PV Factor Present Value 1 = 2 3 es 0 Required Required 2 > should be acquired. 2. Using the answer from part 1, is the internal rate of return higher or lower than 8% for Project C2? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Using the answer from part 1, is the internal rate of return higher or lower than 8% for Project C2? Is the internal rate of return higher or lower than 8% for Project C2?