Check Exercise 11-9 Computing net present value LO P3 B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $377,600 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 151,040 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 236,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (30%) Net income 83,000 62,933 23,600 169,533 66,467 19,940 $ 46,527 If at least an 9% return on this investment must be earned, compute the net present value of this investment. (PV of $1. FV of S1. PVA of $1, and EVA of $.1) (Use appropriate factor(s) from the tables provided.) Chart Values are Based on: 91% Prev 1 of 1 !!! Next If at least an 9% return on this investment must be earned, compute the net present value of the $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Chart Values are Based on: n = i = 91% Amount Present Value Select Chart Present Value of an Annuity of 1 PV Factor 4.4859 = UA 0 Present value of cash inflows Present value of cash outflows Net present value 377 600 Next Chec Exercise 11-10 NPV and profitability Index LO P3 Following is information on two alternative investments being considered by Jolee Company. The company requires a 12% return from its investments. (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project A Project B Initial investment $(173,325) $(151, 960) Expected net cash flows in: Year 1 41,000 40,000 44,000 44,000 Year 3 85,295 50,000 93,400 72,000 Year 5 59,000 32,000 Year 2 Year 4 a. For each alternative project compute the net present value, b. For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Complete this question by entering your answers in the tabs below. Required A Required B For each Alternative entert omnite the nat recent va 1 of 1 HII Required A Required B For each alternative project compute the net present value. 11 Project A Initial Investment $ 173,325 Chart Values are Based on: i = 12 % Year Cash Inflow PV Factor 41,000 2 44.000 x 3 85,295 x 4 93.400 x 5 59.000 x Present Value 1 11 = = 1 of Project B 151,960 $ Initial Investment Year Cash Inflow X PV Factor Present Value 1 1 2 II 11 3 Il 4 5 = = Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the profitability Index. If the company can only select one project, which should it choose? Profitability Index Choose Denominator: Choose Numerator: Profitability Index Profitability index 0 0 Project A Project B If the company can only select one project, which should it choose?