Net Present Value Analysis

Anderson Company must evaluate two capital expenditure proposals. Anderson's hurdle rate is 12%. Data for the two proposals follow.

	Proposal X	Proposal Y
Required investment	$240,000	$240,000
Annual after-tax cash inflows	48,000
After-tax cash inflows at the end of years 3, 6, 9, and 12		144,000
Life of project	12 years	12 years

Using net present value analysis, which proposal is the more attractive?

Do not use negative signs with your answers. Round PV answers to the nearest whole number. Use rounded answers for subsequent calculation of net present value.

	Proposal X	Proposal Y
Net present value
Initial outflows	$ Answer	$ Answer
PV of future cash flows	Answer	Answer
Net present value	$ Answer	$ Answer

Which proposal is more attractive?

Answer

Proposal X or Proposal Y