Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $318,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Net cash flows Project C1 Project C2 Year 1 $ 42,000 $ 126,000 Year 2 138,000 126,000 Year 3 198,000 126,000 Totals $ 378,000 $ 378,000 a. The company requires a 8% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted. b. Using the answer from part a, is the internal rate of return higher or lower than 8% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question.
Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $318,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Net cash flows Project C1 Project C2 Year 1 $ 42,000 $ 126,000 Year 2 138,000 126,000 Year 3 198,000 126,000 Totals $ 378,000 $ 378,000 a. The company requires a 8% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted. b. Using the answer from part a, is the internal rate of return higher or lower than 8% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question.
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 9P
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Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $318,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Net cash flows Project C1 Project C2
Year 1 $ 42,000 $ 126,000
Year 2 138,000 126,000
Year 3 198,000 126,000
Totals $ 378,000 $ 378,000
a. The company requires a 8% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted.
b. Using the answer from part a, is the internal rate of return higher or lower than 8% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question.
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