Net Present Value Analysis

Hermson Company must evaluate two capital expenditure proposals. Hermson's hurdle rate is $12\%.$ Data for the two proposals follow.

Proposal X Proposal Y

Required investment $$630,000$ $$630,000$

Annual after$-$tax cash inflows $148,500$

After$-$tax cash inflows at the end of years $3,6,9,$ and $12445,500$

Life of project $12$ years $12$ years

Using net present value analysis, which proposal is the more attractive?

Do not use negative signs with your answers. Round PV answers to the nearest whole number. Use rounded answers for subsequent calculation of net present value.

Proposal X Proposal Y

Net present value

Initial outflows Answer

$0$

Answer

$0$

PV of future cash flows Answer

$0$

Answer

$0$

Net present value Answer

$0$

Answer

$0$

Which proposal is more attractive?

Answer