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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Calculate NPV—rank projects using present value ratios The following capital expenditure projects have been proposed for management’s consideration at Heard, Inc., for the upcoming budget year: Project Year(s) A B C D E Initial investment . . . . . . 0 $(50,000) $(50,000) $(1 00,000) $(1 00,000) $(200,000) Amount of net cash return . . . . 1 1 0,000 0 32,000 1 0,000 60,000 . . . . . . . . . . . . . . . . 2 1 0,000 0 32,000 20,000 60,000 . . . . . . . . . . . . . . . . 3 1 0,000 20,000 32,000 30,000 30,000 . . . . . . . . . . . . . . . . 4 1 0,000 20,000 32,000 40,000 30,000 . . . . . . . . . . . . . . . . 5 1 0,000 20,000 32,000 50,000 30,000 Per year . . . . . . . . . . . 6–1 0 1 0,000 1 2,000 0 0 30,000 NPV (1 4% discount rate) . . . . . $ 2,1 61 $ ? $ ? $ ? $ 5,884 Present value ratio . . . . . . . 1 .04 ? ? ? ? Required: a. Calculate the net present value of projects B, C, and D, using 14% as the cost of capital for Heard, Inc. b. Calculate the present value ratio for projects B, C, D, and E. c. Which projects would you recommend for investment if the cost of capital is 14% and 1. $100,000 is available for investment? 2. $300,000 is available for investment? 3. $500,000 is available for investment? d. What additional factors (beyond those considered in parts a–c might in? uence your project rankings?
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