1. COMPUTING NET PRESET VALUES & COMPARING ALTERNATIVES

The Sedlik Group is considering three investment opportunities with cash flows as described below. Ignore income taxes in this problem.

PROJECT RX17:

CASH INVESTMENT NOW $15,000

CASH INFLOW END OF YEAR 5 $21,000

CASH INFLOW END OF YEAR 8 $21,000

PROJECT BQ81:

CASH INVESTMENT NOW $16,000

ANNUAL CASH OUTFLOW FOR 5 YEARS $3,000

CASH INFLOW END OF YEAR 5 $21,000

PROJECT MP12:

CASH INVESTMENT NOW $31,000

ANNUAL CASH INFLOW FOR 4 YEARS $11,000

CASH OUTFLOW END OF YEAR 3 $5,000

ADDITIONAL CASH INFLOW END OF YEAR 4 $11,000

REQUIRED:

DRAW A TIME LINE GRAPH FOR EACH PROJECT.

COMPUTE THE NET PRESENT VALUE FOR EACH PROJECT USING A 12% DISCOUNT RATE.

RANK THE PROJECTS.

SINCE THE SEDLIK GROUP ONLY HAS A CAPITAL FUND OF $50,000, WHICH PROJECTS SHOULD THEY PURSUE?

PROJECT RX17 INITIAL INVESTMENT = ___________

PROJECT BQ81 INITIAL INVESTMENT = ___________

PROJECT MP12 INITIAL INVESTMENT = ___________

TOTAL =

TOTAL INITIAL CAPITAL INVESTMENT CANNOT EXCEED $50,000