Use the NPV method to determine whether Root Products should invest in the following projects Project A. Costs $275,000 and offers eight annual net cash inflows of $53,000. Root Products requires an annual return of 12% on investments of this nature Project Costs $385,000 and offers 9 annual net cash inflows of $77,000. Root Products demands an annual return of 10% on investments of this nature, (Click the icon to view Present Value of $1 table) Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements Requirement 1. What is the NPV of each project? Assume nether project has a residual value. Round to two decimal places (Enter any factor amounts to three decimal places, X.XXX Use parentheses or a minus sign for a negative not present value) Caciulate the NPV (net prosent value) of each project. Begin by Calculating the NPV of Project A. Project A: Net Cash Annuity PV Factor Present Years Inflow (*12%, n8) Value 1-8 Present value of annuity 0 Investment Net present value of Project A net Reference Cost Cost icon Periods 20% Irem 1 4% 0.962 0.925 0.889 0.855 0.822 2 3 4 5 1. W BOS mal places NPV 6 7 8 9 10 rosen 0.790 0.760 0.731 0.703 0.676 0.650 0625 0.601 0.577 0.555 vestr 11 12 13 14 15 et pre 1% 2% 3% 0.990 0.980 0.971 0.980 0.961 0.943 0.971 0.942 0.915 0.961 0.924 0.888 0.951 0.906 0.863 0.942 0.888 0.837 0.933 0.871 0.813 0.923 0.853 0.789 0.914 0.837 0.768 0.905 0.820 0.744 0.896 0.804 0.722 0.887 0.788 0.701 0.879 0.773 0.681 0.870 0.758 0.661 0861 0.743 0.642 0.853 0.728 0.623 0.844 0.714 0.605 0.836 0.700 0.587 0.828 0.686 0.570 0.820 0.673 0.554 0.811 0.650 0.538 0.803 0.647 0.522 0.795 0.634 0.507 0.788 0.622 0.492 0.780 0.610 0.478 0.772 0.598 0.464 0.764 0.586 0.450 0.757 0.574 0.437 0.749 0.563 0.424 0.742 0.552 0.412 0.672 0.453 0.307 0.808 0.372 0.228 Present Value of $1 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 0.952 0.943 0.935 0.926 0.917 0.909 0.833 0.877 0.870 0.862 0.847 0.833 0.907 0.890 0873 0.857 0.342 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.864 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.823 0.792 0.763 0.735 0.708 0.683 0.638 0.592 0.572 0.552 0.516 0.482 0.784 0.747 0.713 0.681 0650 0.621 0.567 0519 0.497 0.476 0.437 0.402 0.746 0.705 0.6660.630 0596 0.564 0.507 0.456 0.432 0410 0.370 0.335 0.711 0.665 0.623 0.583 0.547 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.677 0.627 0.582 0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.6450.592 0.544 0.500 0.460 0.424 0.361 0.308 0284 0.263 0.225 0.194 0614 0.558 0.508 0.463 0.422 0.386 0.322 0.270 0247 0227 0.191 0.162 0.585 0.527 0.475 0.429 0.388 0.350 0287 0.237 0.215 0.195 0.162 0.135 0557 0.497 0.444 0.397 0.356 0.319 0257 0208 0.187 0.168 0.137 0.112 0.530 0.469 0.415 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.505 0.442 0.388 0.340 0.299 0.263 0205 0.160 0.141 0.125 0.099 0.078 0.481 0.417 0.362 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065 0.458 0 394 0.339 0.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054 0.435 0.371 0.317 0270 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045 0.416 0.350 0.296 0.250 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038 0.396 0.331 0.277 0232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031 0.377 0.3120.258 0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026 0.359 0.294 0.242 0.199 0.154 0.135 0.098 0.064 0.053 0.044 0.031 0.022 0.342 0.278 0.226 0.184 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018 0.3260 262 0.211 0.170 0.138 0.112 0.074 0.049 0.040 0.033 0.022 0.015 0.310 0.247 0.197 0.158 0.125 0.102 0.066 0.043 0.035 0.028 0.013 0.295 0.233 0.184 0.146 0.116 0.092 0.059 0.038 0.030 0.024 0.016 0.010 0.281 0.220 0.172 0.135 0.106 0.084 0.053 0.033 0.026 0.021 0.014 0.009 0.268 0.207 0.161 0.125 0.098 0.078 0.047 0.029 0.0230.018 0.011 0.007 0.255 0.196 0.150 0.116 0.090 0.069 0.042 0.026 0.020 0.016 0.010 0.006 0243 0.185 0.141 0.107 0.082 0.063 0.037 0.022 0.017 0.014 0.008 0.005 0231 0.174 0.131 0.099 0.075 0.057 0.000 0.020 0.015 0.012 0.007 0.004 0.142 0.097 0.067 0.046 0.032 0.011 0.005 0.0040.003 0.001 0.001 0.087 0.054 0.034 0.021 0.013 0.009 0.003 0.001 0.001 0.001 16 17 18 19 20 0.534 0.513 0.494 0.475 0.456 0.439 0.422 0.406 0.390 0.375 0.019 21 22 23 24 25 26 27 28 29 30 0.361 0.347 0.333 0.321 0.308 0208 40 50 0.141 umber Print Done ng Clear Check Answer MacBook Pro Reference Periods 4% 2 3 4 5 12% 0.893 1.690 2.402 3.037 3.605 14% 0.877 1.647 2.322 2.914 3.433 6 7 8 9 10 4.111 4.564 4.968 5.328 5.650 3.889 4.288 4.639 4.946 5.216 15% 0.870 1.626 2 283 2.855 3.352 3.784 4.160 4.487 4.772 5.019 5.234 5421 5.583 5.724 5.847 11 12 13 14 15 Present Value of Ordinary Annuity of $1 1% 2% 3% 5% 6% 7% 8% 9% 10% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 4.853 4.713 4.580 4.452 4329 4212 4.100 3.993 3.890 3.791 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 12.134 11.348 10.6359.986 9.394 8.853 8.358 7.904 7.487 7.103 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 14.718 13.578 12.561 11.652 10.838 10.106 9447 8.851 8.313 7.824 15.562 14 292 13.166 12.166 11 274 10.4779.763 9.122 8.544 8.022 16.398 14.992 13.754 12.659 11.690 10.828 10.0599.372 8.756 8.201 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 18.046 16.351 14.877 13.590 12.462 11.470 10.5949.818 9.129 8.514 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.0179292 8.649 19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.8239.077 22.795 20.121 17.877 15.983 14.375 13.003 11.826 10.810 9.929 9.161 23.560 20.707 18.327 16.330 14.643 13.211 11.987 10.935 10.027 9.237 24.316 21.28118.764 16.663 14.898 13.406 12.137 11.051 10.116 9.307 25.066 21.844 19.188 16.984 15.141 13.591 12 278 11.158 10.1989.370 25.80B 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.2749.427 32835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.7579.779 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12 233 10.962 9.915 16 17 18 19 20 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 7.562 7.645 7.718 7.784 7.843 7.896 7.943 7.984 8.022 8.055 8.244 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.687 6.743 6.792 6.835 6.873 5.954 6.047 6.128 6.198 6.259 16% 18% 20% 0.862 0.847 0.833 1.605 1.566 1.528 2246 2.174 2.106 2.798 2.690 2.589 3274 3.127 2.991 3.685 3.498 3.326 4.039 3.812 3.605 4.344 4.078 3.837 4,607 4.303 4.031 4.833 4.494 4.192 5.029 4.656 4.327 5.197 4.793 4.439 5.342 4.910 4.533 5.468 5.008 4.611 5.575 5.092 4.675 5.669 5.162 4.730 5.749 5.222 4.775 5.818 5.273 4.812 5.877 5.316 4.844 5.929 5.353 4.870 5.973 5.384 4.891 6.011 5.410 4.909 6.044 5.432 4.925 6.073 5.451 4.937 6.097 5.467 4.948 6.118 5.480 4.956 6.136 5.492 4.964 6.152 5.502 4.970 6.166 5.510 4.975 6.177 5.517 4.979 6.233 5.548 4.997 6.246 5.554 4.999 21 22 23 24 25 26 27 28 29 30 6.906 6.935 6.961 6.983 7.003 7.105 6.312 6.359 6.399 6.434 6.464 6.491 6.514 6.534 6.551 6.566 6.642 40 50 8.304 7.133 6.661 er Print Done Clear All Check Answ Help Me Solve This Bimal places, X.X Question Help Use the NPV method to determine whether Root Products should invest in the following projects: Project A: Costs $275,000 and offers eight annual net cash inflows of $53,000. Root Products requires an annual return of 12% on investments of this nature Project B: Costs $385,000 and offers 9 annual net cash inflows of $77,000. Root Products demands an annual return of 10% on investments of this nature (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. The net present value (NPV) method of capital investment analysis incorporates the time value of money, NPV measures the net difference between the present value of the investment's net cash inflows and the investment's cost (cash outflows). We discount the net cash inflows using the company's minimum required rate of return. This rate is called the discount rate because it is the interest rate used for the present value calculations. The discount rate is the interest rate that discounts or reduces future amounts to their lesser value in the present (today). It is also called the required rate of return or hurdle rate because the investment must meet or exceed this rate to be acceptable. The discount rate depends on the riskiness of investments. The higher the risk, the higher the discount rate. White Products is analyzing two projects. Each project requires an initial investment (cash outflow) and will result in a series of equal annual cash inflows over a certain period of time. A stream of equal payments made at equal time intervals is called an annuity. To calculate the present value (PV) of an annuity, we must multiply the expected annual cash inflow by an annuity PV factor. Let's begin with Project A. Use the Present Value of Ordinary Annuity of $1 factor table provided, and identify the factor that intersects the 14% column and the period (years) row. (Enter the factor to three decimal places, Xxxx) Project A: The present value of an annuity of $1 received each year for seven years, discounted at 14% per year is 4.288 We multiply the net cash inflow for Project A by the annuity PV factor to calculate the PV of the annuity. Then, to calculate the net present Investme Net press Years Value We multiply the net cash inflow for Project A by the annuity PV factor to calculate the PV of the annuity. Then, to calculate the net present value of Project A, we must subtract the present value of the cash outflow for the investment (which is already stated in present value terms) from the total PV of cash inflows. Use the following table to calculate the net present value of Project A. (Use parentheses or a minus sign for a negative net present value) Project A: Net Cash Annuity PV Factor Present Inflow (i=14%, n-7) 1-7 Present value of annuity 52.000 222,976 0 Investment (270,000) Net present value of Project A (47,024 Now, use the Present Value of Ordinary Annuity of $1 factor table provided, and identify the factor needed calculate the PV of the cash inflows for Project B. Enter the factor that intersects the 12% column and the 10 period (years) row. (Enter the factor to three decimal places. X.XXX.) $ 4.288 $ ostma t pres Project B: The present value of an annuity of $1 received each year for ten years, discounted at 12% per year is 5.650 Use the following table to calculate the net present value of Project B. (Use parentheses or a minus sign for a negative net present value.) Project B: Net Cash Annuity PV Factor Present Years Inflow (i=12%, n=10) 1 - 10 Present value of annuity $ 72,000 5.650 (395,000) Value $ 406,800 0 Investment $ 11,800 Net present value of Project B t pres Requirement 2. What is the maximum acceptable price to pay for each project? Another way managers can use present value analysis is to start the capital budeting process by computing the total present value of the net cash inflows from the project to determine the maximum the company can invest in the project and still earn the required rate of return. For example, if White invests $222,976 (the present value of the cash inflows from Project A), the NPV will be $0 and the return will be exactly 14%. Using this reasoning, determine the maximum acceptable price for each project. Maximum Acceptable Price Project A $ 222,976 Project B $ 406,800 Requirement 3. What is the profitability index of each project? Round to two decimal places, What happens if a company has more than one investment option and more than one option appears to be an attractive investment? Assuming the company can only invest in one project at this time, which one should it choose? The company may want to compute the profitability index (also known as the present value index) to assist in the decision. The profitability index computes the number of dollars Requirement 3. What is the profitability index of each project? Round to two decimal places. What happens if a company has more than one investment option and more than one option appears to be an attractive investment? Assuming the company can only invest in one project at this time, which one should it choose? The company may want to compute the profitability index (also known as the present value index) to assist in the decision. The profitability index computes the number of dollars returned for every dollar invested, with all calculations performed in present value dollars. The profitability index is computed by dividing the present value of net cash inflows by the initial investment. Note that you have already determined the present value of cash inflows when calculating the NPV of each project. Go ahead and calculate the profitability index for each project. Present value of net cash inflows Initial investment Profitability index Project A 222,976 270,000 0.83 Project B 406,800 395,000 1.03 $ $