Use the NPV method to determine whether McKnight Products should invest in the following projects:

Project A: Costs $290,000 and offers eight annual net cash inflows of $57,000. McKnight Products requires an annual return of 14% on investments of this nature.Project B: Costs $385,000 and offers 10 annual net cash inflows of $70,000. McKnight Products demands an annual return of 12% on investments of this nature.

Reference

Present Value of $1 Periods1%2%3%4%5%6%7%8%9%10%12%14%15%16%18%20%Period 10.9900.9800.9710.9620.9520.9430.9350.9260.9170.9090.8930.8770.8700.8620.8470.833Period 20.9800.9610.9430.9250.9070.8900.8730.8570.8420.8260.7970.7690.7560.7430.7180.694Period 30.9710.9420.9150.8890.8640.8400.8160.7940.7720.7510.7120.6750.6580.6410.6090.579Period 40.9610.9240.8880.8550.8230.7920.7630.7350.7080.6830.6360.5920.5720.5520.5160.482Period 50.9510.9060.8630.8220.7840.7470.7130.6810.6500.6210.5670.5190.4970.4760.4370.402 Period 60.9420.8880.8370.7900.7460.7050.6660.6300.5960.5640.5070.4560.4320.4100.3700.335Period 70.9330.8710.8130.7600.7110.6650.6230.5830.5470.5130.4520.4000.3760.3540.3140.279Period 80.9230.8530.7890.7310.6770.6270.5820.5400.5020.4670.4040.3510.3270.3050.2660.233Period 90.9140.8370.7660.7030.6450.5920.5440.5000.4600.4240.3610.3080.2840.2630.2250.194Period 100.9050.8200.7440.6760.6140.5580.5080.4630.4220.3860.3220.2700.2470.2270.1910.162 Period 110.8960.8040.7220.6500.5850.5270.4750.4290.3880.3500.2870.2370.2150.1950.1620.135Period 120.8870.7880.7010.6250.5570.4970.4440.3970.3560.3190.2570.2080.1870.1680.1370.112Period 130.8790.7730.6810.6010.5300.4690.4150.3680.3260.2900.2290.1820.1630.1450.1160.093Period 140.8700.7580.6610.5770.5050.4420.3880.3400.2990.2630.2050.1600.1410.1250.0990.078Period 150.8610.7430.6420.5550.4810.4170.3620.3150.2750.2390.1830.1400.1230.1080.0840.065 Period 160.8530.7280.6230.5340.4580.3940.3390.2920.2520.2180.1630.1230.1070.0930.0710.054Period 170.8440.7140.6050.5130.4360.3710.3170.2700.2310.1980.1460.1080.0930.0800.0600.045Period 180.8360.7000.5870.4940.4160.3500.2960.2500.2120.1800.1300.0950.0810.0690.0510.038Period 190.8280.6860.5700.4750.3960.3310.2770.2320.1940.1640.1160.0830.0700.0600.0430.031Period 200.8200.6730.5540.4560.3770.3120.2580.2150.1780.1490.1040.0730.0610.0510.0370.026 Period 210.8110.6600.5380.4390.3590.2940.2420.1990.1640.1350.0930.0640.0530.0440.0310.022Period 220.8030.6470.5220.4220.3420.2780.2260.1840.1500.1230.0830.0560.0460.0380.0260.018Period 230.7950.6340.5070.4060.3260.2620.2110.1700.1380.1120.0740.0490.0400.0330.0220.015Period 240.7880.6220.4920.3900.3100.2470.1970.1580.1260.1020.0660.0430.0350.0280.0190.013Period 250.7800.6100.4780.3750.2950.2330.1840.1460.1160.0920.0590.0380.0300.0240.0160.010 Period 260.7720.5980.4640.3610.2810.2200.1720.1350.1060.0840.0530.0330.0260.0210.0140.009Period 270.7640.5860.4500.3470.2680.2070.1610.1250.0980.0760.0470.0290.0230.0180.0110.007Period 280.7570.5740.4370.3330.2550.1960.1500.1160.0900.0690.0420.0260.0200.0160.0100.006Period 290.7490.5630.4240.3210.2430.1850.1410.1070.0820.0630.0370.0220.0170.0140.0080.005Period 300.7420.5520.4120.3080.2310.1740.1310.0990.0750.0570.0330.0200.0150.0120.0070.004 Period 400.6720.4530.3070.2080.1420.0970.0670.0460.0320.0220.0110.0050.0040.0030.0010.001 Period 500.6080.3720.2280.1410.0870.0540.0340.0210.0130.0090.0030.0010.0010.001

Question content area bottom

Part 1

Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.)

Calculate the NPV (net present value) of each project. Begin by calculating the NPV of Project A.

Project A:Net CashAnnuity PV FactorPresentYears Inflow(i=14%, n=8)Value1 - 8Present value of annuity 0Investment Net present value of Project A