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Portland Products is considering the purchase of one of three mutually exclusive projects for increasing production efficiency
Portland Products is considering the purchase of one of three mutually exclusive projects for increasing production efficiency. The firm plans to use a 13.6% cost of capital to evaluate these? equal-risk projects. The initial investment and annual cash inflows over the life of each project are shown in the following table.
Project X Project Y Project Z
Initial investment (CFA) $78,000 $52,000 $66,000
Year (t ) Cash inflows (CFt)
1 $17,300 $27,600 $15,500
2 25,400 38,200 15,500
3 32,800 15,500
4 40,800 15,500
5 15,500
6 15,500
7 15,500
a. The net present value for project X is $____________ ( round to two decimal places)
The net present value for project Y is $___________ ( round to two decimal places)
The net present value for project Z is $___________ ( round to two decimal places)
Rank the machines in descending order on the basis of NPV.
b. The ANPV for project X is $____________ ( round to two decimal places)
The ANPV for project Y is $____________ ( round to two decimal places)
The ANPV for project Z is $____________ ( round to two decimal places)
Rank the machines in descending order on the basis of NPV.
Expert Solution
a) Net present value:
- Project X = $3,783.90
- Project Y = $1,896.80
- Project Z = $1,289.12
b) ANPV:
- Project X = $1,288.02
- Project Y = $1,145.98
- Project Z = $296.95
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