Present Value of $1 Periods 2% 4% Period 1 0.980 0.962 Period 2 0.961 0.925 Period 3 0.942 0.889 Period 4 0.924 0.855 Period 5 0.906 0.822 Period 6 0.888 0.790 Period 7 0.871 0.760 Period 8 0.853 0.731 Period 90.837 0.703 Period 10 0.820 0.676 Period 11 0.804 0.650 Period 12 0.788 0.625 Period 13 0.773 0.601 Period 14 0.758 0.577 Period 15 0.743 0.555 Period 16 0.728 0.534 Period 17 0.714 0.513 Period 18 0.700 0.494 Period 19 0.686 0.475 Period 20 0.673 0.456 Period 21 0.660 0.439 Period 22 0.647 0.422 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.294 0.278 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.199 0.184 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.135 0.123 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.093 0.083 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.064 0.056 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0.060 0.051 0.044 0.038 18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.031 0.026 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.022 0.018 22% 0.820 0.672 0.551 0.451 0.370 0.303 0.249 0.204 0.167 0.137 0.112 0.092 0.075 0.062 0.051 0.042 0.034 0.028 0.023 0.019 0.015 0.013 24% 0.806 0.650 0.524 0.423 0.341 0.275 0.222 0.179 0.144 0.116 0.094 0.076 0.061 0.049 0.040 0.032 0.026 0.021 0.017 0.014 0.011 0.009 26% 0.794 0.630 0.500 0.397 0.315 0.250 0.198 0.157 0.125 0.099 0.079 0.062 0.050 0.039 0.031 0.025 0.020 0.016 0.012 0.010 0.008 0.006 28% 0.781 0.610 0.477 0.373 0.291 0.227 0.178 0.139 0.108 0.085 0.066 0.052 0.040 0.032 0.025 0.019 0.015 0.012 0.009 0.007 0.006 0.004 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O OOO Present Value of Annuity of $1.00 in Arrears* Periods 2% 4% 6% 8% Period 1 0.980 0.962 0.943 0.926 Period 2 1.942 1.886 1.833 1.783 Period 3 2.884 2.775 2.673 2.577 Period 4 3.808 3.630 3.465 3.312 Period 5 4.713 4.452 4.212 3.993 Period 6 5.601 5.242 4.917 4.623 Period 7 6.472 6.002 5.582 5.206 Period 8 7.325 6.733 6.210 5.747 Period 98.162 7.435 6.802 6.247 Period 10 8.983 8.111 7.360 6.710 Period 11 9.787 8.760 7.887 7.139 Period 12 10.575 9.385 8.384 7.536 Period 13 11.348 9.986 8.853 7.904 Period 14 12.106 10.563 9.295 8.244 Period 15 12.849 11.118 9.712 8.559 Period 16 13.578 11.652 10.106 8.851 Period 17 14.292 12.166 10.477 9.122 Period 18 14.992 12.659 10.828 9.372 Period 19 15.678 13.134 11.158 9.604 Period 20 16.351 13.590 11.470 9.818 Period 21 17.011 14.029 11.764 10.017 Period 22 17.658 14.451 12.042 10.201 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 8.649 8.772 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 7.562 7.645 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.687 6.743 16% 0.862 1.605 2.246 2.798 3.274 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 5.668 5.749 5.818 5.877 5.929 5.973 6.011 18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353 5.384 5.410 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870 4.891 4.909 22% 0.820 1.492 2.042 2.494 2.864 3.167 3.416 3.619 3.786 3.923 4.035 4.127 4.203 4.265 4.315 4.357 4.391 4.419 4.442 4.460 4.476 4.488 24% 0.806 1.457 1.981 2.404 2.745 3.020 3.242 3.421 3.566 3.682 3.776 3.851 3.912 3.962 4.001 4.033 4.059 4.080 4.097 4.110 4.121 4.130 26% 0.794 1.424 1.923 2.320 2.635 2.885 3.083 3.241 3.366 3.465 3.543 3.606 3.656 3.695 3.726 3.751 3.771 3.786 3.799 3.808 3.816 3.822 28% 0.781 1.392 1.868 2.241 2.532 2.759 2.937 3.076 3.184 3.269 3.335 3.387 3.427 3.459 3.483 3.503 3.518 3.529 3.539 3.546 3.551 3.556 30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.320 3.323 Compound Amount of Annuity of $1.00 in Arrears* (Future Value of Annuity) Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Period 22.020 2.040 2.060 2.080 2.100 2.120 2.140 2.160 2.180 2.200 Period 3 3.060 3.122 3.184 3.246 3.310 3.374 3.440 3.506 3.572 3.640 Period 4 4.122 4.246 4.375 4.506 4.641 4.779 4.921 5.066 5.215 5.368 Period 5 5.204 5.416 5.637 5.867 6.105 6.353 6.610 6.877 7.154 7.442 Period 6 6.308 6.633 6.975 7.336 7.716 8.115 8.536 8.977 9.442 9.930 Period 7 7.434 7.898 8.394 8.923 9.487 10.089 10.730 11.414 12.142 12.916 Period 8 8.583 9.214 9.897 10.637 11.436 12.300 13.233 14.240 15.327 16.499 Period 9 9.755 10.583 11.491 12.488 13.579 14.776 16.085 17.519 19.086 20.799 Period 10 10.950 12.006 13.181 14.487 15.937 17.549 19.337 21.321 23.521 25.959 Period 11 12.169 13.486 14.972 16.645 18.531 20.655 23.045 25.733 28.755 32.150 Period 12 13.412 15.026 16.870 18.977 21.384 24.133 27.271 30.850 34.931 39.581 Period 13 14.680 16.627 18.882 21.495 24.523 28.029 32.089 36.786 42.219 48.497 Period 14 15.974 18.292 21.015 24.215 27.975 32.393 37.581 43.672 50.818 59.196 Period 15 17.293 20.024 23.276 27.152 31.772 37.280 43.842 51.660 60.965 72.035 Period 16 18.639 21.825 25.673 30.324 35.950 42.753 50.980 60.925 72.939 87.442 Period 17 20.012 23.698 28.213 33.750 40.545 48.884 59.118 71.673 87.068 105.931 Period 18 21.412 25.645 30.906 37.450 45.599 55.750 68.394 84.141. 103.740 128.117 Period 19 22.841 27.671 33.760 41.446 51.159 63.440 78.969 98.603 123.414 154.740 Period 20 24.297 29.778 36.786 45.762 57.275 72.052 91.025 115.380 146.628 186.688 Period 21 25.783 31.969 39.993 50.423 64.002 81.699 104.768 134.841 174.021 225.026 Period 22 27.299 34.248 43.392 55.457 71.403 92.503 120.436 157.415 206.345 271.031 22% 1.000 2.220 3.708 5.524 7.740 10.442 13.740 17.762 22.670 28.657 35.962 44.874 55.746 69.010 85.192 104.935 129.020 158.405 194.254 237.989 291.347 356.443 24% 1.000 2.240 3.778 5.684 8.048 10.980 14.615 19.123 24.712 31.643 40.238 50.895 64.110 80.496 100.815 126.011 157.253 195.994 244.033 303.601 377.465 469.056 26% 1.000 2.260 3.848 5.848 8.368 11.544 15.546 20.588 26.940 34.945 45.031 57.739 73.751 93.926 119.347 151.377 191.735 242.585 306.658 387.389 489.110 617.278 28% 1.000 2.280 3.918 6.016 8.700 12.136 16.534 22.163 29.369 38.593 50.398 65.510 84.853 109.612 141.303 181.868 233.791 300.252 385.323 494.213 633.593 811.999 The Nielsen Company is a national portable building manufacturer. Its Benton plant will become idle on December 31, 2017. Mary Carter, the corporate controller, has been asked to look at three options regarding the plant: (Click the icon to view the options.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. Nielsen Company treats all cash flows as if they occur at the end of the year, and uses an after-tax required rate of return of 8%. Nielsen is subject to a 20% tax rate on all income, including capital gains. Requirement 1. Calculate net present value of each of the options and determine which option Nielsen should select using the NPV criterion. The net present value of Option 1 is Begin the calculation of Option 2 by determining the after-tax cash inflow for rent. Then, determine the after-tax cash inflow for the material purchases discount. Finally, determine the after-tax cash inflow on sale of the plant and the total net present value (NPV) of Option 2. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) Net Cash Present Value PV factor Inflow of Cash Flows Present value of net cash flows, Option 2: Present value of net cash flows, Option 2: After-tax cash inflows from rent: Dec 31, 2018 Dec 31, 2019 X X Dec 31, 2020 Dec 31, 2021 X After-tax cash inflows from discount on purchases: Dec 31, 2018 Dec 31, 2019 x x x x Dec 31, 2020 NU Dec 31, 2021 Present value of after-tax cash flow from sale of plant Net present value, Option 2 Begin the calculation of Option 3 by determining the after-tax cash inflow from operations (excluding depreciation). Then, determine the after-tax cash savings from annual depreciation deductions. Finally, determine the after-tax cash inflow on sale of the plant and the total net present value (NPV) of Option 3. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative present value of net cash flows. Enter the net present value of the investment rounded to the nearest whole dollar.) Net Cash Present Value PV factor Inflow of Cash Flows Present value of net cash flows, Option 3: Initial equipment investment After-tax cash inflows from operations (excluding depreciation): Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 After-tax cash savings from annual depreciation deductions: After-tax cash savings from annual depreciation deductions: Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 Present value of after-tax cash flow from sale of plant Net present value, Option 3 Nielsen Company should choose for the Benton plant. Requirement 2. What nonfinancial factors should Nielsen consider before making its choice? For each option, select one or more nonfinancial factors that Nielsen should consider. (Select all that apply. If a box is not used in the table, leave the box empty.) Nielsen Company should choose for the Benton plant. Requirement 2. What nonfinancial factors should Nielsen consider before making its choice? For each option, select one or more nonfinancial factors that Nielsen should consider. (Select all that apply. If a box is not used in the table, leave the box empty.) Option 1 Option 2 Failure to recognize savings from depreciation Gives Nielsen immediate liquidity Gives Nielsen a closer relationship with the supplier Has Nielsen entering a new line of business If successful, option could be expanded to cover other accessories Limits Nielsen's flexibility if the supplier's quality is not comparable to competitors Limits Nielsen's liquidity due to working capital requirements Potential risks of failing to meet predicted sales Option 3 Present Value of $1 Periods 2% 4% Period 1 0.980 0.962 Period 2 0.961 0.925 Period 3 0.942 0.889 Period 4 0.924 0.855 Period 5 0.906 0.822 Period 6 0.888 0.790 Period 7 0.871 0.760 Period 8 0.853 0.731 Period 90.837 0.703 Period 10 0.820 0.676 Period 11 0.804 0.650 Period 12 0.788 0.625 Period 13 0.773 0.601 Period 14 0.758 0.577 Period 15 0.743 0.555 Period 16 0.728 0.534 Period 17 0.714 0.513 Period 18 0.700 0.494 Period 19 0.686 0.475 Period 20 0.673 0.456 Period 21 0.660 0.439 Period 22 0.647 0.422 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.294 0.278 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.199 0.184 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.135 0.123 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.093 0.083 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.064 0.056 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0.060 0.051 0.044 0.038 18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.031 0.026 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.022 0.018 22% 0.820 0.672 0.551 0.451 0.370 0.303 0.249 0.204 0.167 0.137 0.112 0.092 0.075 0.062 0.051 0.042 0.034 0.028 0.023 0.019 0.015 0.013 24% 0.806 0.650 0.524 0.423 0.341 0.275 0.222 0.179 0.144 0.116 0.094 0.076 0.061 0.049 0.040 0.032 0.026 0.021 0.017 0.014 0.011 0.009 26% 0.794 0.630 0.500 0.397 0.315 0.250 0.198 0.157 0.125 0.099 0.079 0.062 0.050 0.039 0.031 0.025 0.020 0.016 0.012 0.010 0.008 0.006 28% 0.781 0.610 0.477 0.373 0.291 0.227 0.178 0.139 0.108 0.085 0.066 0.052 0.040 0.032 0.025 0.019 0.015 0.012 0.009 0.007 0.006 0.004 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O OOO Present Value of Annuity of $1.00 in Arrears* Periods 2% 4% 6% 8% Period 1 0.980 0.962 0.943 0.926 Period 2 1.942 1.886 1.833 1.783 Period 3 2.884 2.775 2.673 2.577 Period 4 3.808 3.630 3.465 3.312 Period 5 4.713 4.452 4.212 3.993 Period 6 5.601 5.242 4.917 4.623 Period 7 6.472 6.002 5.582 5.206 Period 8 7.325 6.733 6.210 5.747 Period 98.162 7.435 6.802 6.247 Period 10 8.983 8.111 7.360 6.710 Period 11 9.787 8.760 7.887 7.139 Period 12 10.575 9.385 8.384 7.536 Period 13 11.348 9.986 8.853 7.904 Period 14 12.106 10.563 9.295 8.244 Period 15 12.849 11.118 9.712 8.559 Period 16 13.578 11.652 10.106 8.851 Period 17 14.292 12.166 10.477 9.122 Period 18 14.992 12.659 10.828 9.372 Period 19 15.678 13.134 11.158 9.604 Period 20 16.351 13.590 11.470 9.818 Period 21 17.011 14.029 11.764 10.017 Period 22 17.658 14.451 12.042 10.201 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 8.649 8.772 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 7.562 7.645 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.687 6.743 16% 0.862 1.605 2.246 2.798 3.274 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 5.668 5.749 5.818 5.877 5.929 5.973 6.011 18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353 5.384 5.410 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870 4.891 4.909 22% 0.820 1.492 2.042 2.494 2.864 3.167 3.416 3.619 3.786 3.923 4.035 4.127 4.203 4.265 4.315 4.357 4.391 4.419 4.442 4.460 4.476 4.488 24% 0.806 1.457 1.981 2.404 2.745 3.020 3.242 3.421 3.566 3.682 3.776 3.851 3.912 3.962 4.001 4.033 4.059 4.080 4.097 4.110 4.121 4.130 26% 0.794 1.424 1.923 2.320 2.635 2.885 3.083 3.241 3.366 3.465 3.543 3.606 3.656 3.695 3.726 3.751 3.771 3.786 3.799 3.808 3.816 3.822 28% 0.781 1.392 1.868 2.241 2.532 2.759 2.937 3.076 3.184 3.269 3.335 3.387 3.427 3.459 3.483 3.503 3.518 3.529 3.539 3.546 3.551 3.556 30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.320 3.323 Compound Amount of Annuity of $1.00 in Arrears* (Future Value of Annuity) Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Period 22.020 2.040 2.060 2.080 2.100 2.120 2.140 2.160 2.180 2.200 Period 3 3.060 3.122 3.184 3.246 3.310 3.374 3.440 3.506 3.572 3.640 Period 4 4.122 4.246 4.375 4.506 4.641 4.779 4.921 5.066 5.215 5.368 Period 5 5.204 5.416 5.637 5.867 6.105 6.353 6.610 6.877 7.154 7.442 Period 6 6.308 6.633 6.975 7.336 7.716 8.115 8.536 8.977 9.442 9.930 Period 7 7.434 7.898 8.394 8.923 9.487 10.089 10.730 11.414 12.142 12.916 Period 8 8.583 9.214 9.897 10.637 11.436 12.300 13.233 14.240 15.327 16.499 Period 9 9.755 10.583 11.491 12.488 13.579 14.776 16.085 17.519 19.086 20.799 Period 10 10.950 12.006 13.181 14.487 15.937 17.549 19.337 21.321 23.521 25.959 Period 11 12.169 13.486 14.972 16.645 18.531 20.655 23.045 25.733 28.755 32.150 Period 12 13.412 15.026 16.870 18.977 21.384 24.133 27.271 30.850 34.931 39.581 Period 13 14.680 16.627 18.882 21.495 24.523 28.029 32.089 36.786 42.219 48.497 Period 14 15.974 18.292 21.015 24.215 27.975 32.393 37.581 43.672 50.818 59.196 Period 15 17.293 20.024 23.276 27.152 31.772 37.280 43.842 51.660 60.965 72.035 Period 16 18.639 21.825 25.673 30.324 35.950 42.753 50.980 60.925 72.939 87.442 Period 17 20.012 23.698 28.213 33.750 40.545 48.884 59.118 71.673 87.068 105.931 Period 18 21.412 25.645 30.906 37.450 45.599 55.750 68.394 84.141. 103.740 128.117 Period 19 22.841 27.671 33.760 41.446 51.159 63.440 78.969 98.603 123.414 154.740 Period 20 24.297 29.778 36.786 45.762 57.275 72.052 91.025 115.380 146.628 186.688 Period 21 25.783 31.969 39.993 50.423 64.002 81.699 104.768 134.841 174.021 225.026 Period 22 27.299 34.248 43.392 55.457 71.403 92.503 120.436 157.415 206.345 271.031 22% 1.000 2.220 3.708 5.524 7.740 10.442 13.740 17.762 22.670 28.657 35.962 44.874 55.746 69.010 85.192 104.935 129.020 158.405 194.254 237.989 291.347 356.443 24% 1.000 2.240 3.778 5.684 8.048 10.980 14.615 19.123 24.712 31.643 40.238 50.895 64.110 80.496 100.815 126.011 157.253 195.994 244.033 303.601 377.465 469.056 26% 1.000 2.260 3.848 5.848 8.368 11.544 15.546 20.588 26.940 34.945 45.031 57.739 73.751 93.926 119.347 151.377 191.735 242.585 306.658 387.389 489.110 617.278 28% 1.000 2.280 3.918 6.016 8.700 12.136 16.534 22.163 29.369 38.593 50.398 65.510 84.853 109.612 141.303 181.868 233.791 300.252 385.323 494.213 633.593 811.999 The Nielsen Company is a national portable building manufacturer. Its Benton plant will become idle on December 31, 2017. Mary Carter, the corporate controller, has been asked to look at three options regarding the plant: (Click the icon to view the options.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. Nielsen Company treats all cash flows as if they occur at the end of the year, and uses an after-tax required rate of return of 8%. Nielsen is subject to a 20% tax rate on all income, including capital gains. Requirement 1. Calculate net present value of each of the options and determine which option Nielsen should select using the NPV criterion. The net present value of Option 1 is Begin the calculation of Option 2 by determining the after-tax cash inflow for rent. Then, determine the after-tax cash inflow for the material purchases discount. Finally, determine the after-tax cash inflow on sale of the plant and the total net present value (NPV) of Option 2. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) Net Cash Present Value PV factor Inflow of Cash Flows Present value of net cash flows, Option 2: Present value of net cash flows, Option 2: After-tax cash inflows from rent: Dec 31, 2018 Dec 31, 2019 X X Dec 31, 2020 Dec 31, 2021 X After-tax cash inflows from discount on purchases: Dec 31, 2018 Dec 31, 2019 x x x x Dec 31, 2020 NU Dec 31, 2021 Present value of after-tax cash flow from sale of plant Net present value, Option 2 Begin the calculation of Option 3 by determining the after-tax cash inflow from operations (excluding depreciation). Then, determine the after-tax cash savings from annual depreciation deductions. Finally, determine the after-tax cash inflow on sale of the plant and the total net present value (NPV) of Option 3. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative present value of net cash flows. Enter the net present value of the investment rounded to the nearest whole dollar.) Net Cash Present Value PV factor Inflow of Cash Flows Present value of net cash flows, Option 3: Initial equipment investment After-tax cash inflows from operations (excluding depreciation): Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 After-tax cash savings from annual depreciation deductions: After-tax cash savings from annual depreciation deductions: Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 Present value of after-tax cash flow from sale of plant Net present value, Option 3 Nielsen Company should choose for the Benton plant. Requirement 2. What nonfinancial factors should Nielsen consider before making its choice? For each option, select one or more nonfinancial factors that Nielsen should consider. (Select all that apply. If a box is not used in the table, leave the box empty.) Nielsen Company should choose for the Benton plant. Requirement 2. What nonfinancial factors should Nielsen consider before making its choice? For each option, select one or more nonfinancial factors that Nielsen should consider. (Select all that apply. If a box is not used in the table, leave the box empty.) Option 1 Option 2 Failure to recognize savings from depreciation Gives Nielsen immediate liquidity Gives Nielsen a closer relationship with the supplier Has Nielsen entering a new line of business If successful, option could be expanded to cover other accessories Limits Nielsen's flexibility if the supplier's quality is not comparable to competitors Limits Nielsen's liquidity due to working capital requirements Potential risks of failing to meet predicted sales Option 3
