Answer:
Project c3 should be acquired
The IRR of c2 is greater than 9%
Step-by-step explanation:
Here is the beginning part of the question:
Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $276,000 and would yield the following annual cash flows. (PV of $1, FV of $1, PVA of $1 and FVA of $1) (Use appropriate factor(s) from the tables provided.)
The net present value is the present value of after tax cash flows from an investment less the amount invested.
The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.
IRR and NPV can be calculated using a financial calculator:
NPV
For project C 1
Cash flow in year 0 = $-276,000
Cash flow in year 1 = $ 28,000
Cash flow in year 2 = $124,000
Cash flow in year 3 = 184,000
I = 9%
NPV = $-3861.85
For project C2
Cash flow in year 0 = $-276,000
Cash flow in year 1 = $ 112,000
Cash flow in year 2 = $ 112,000
Cash flow in year 3 = $ 112,000
I = 9%
NPV = $7,505
IRR = 10.52 %
For project C 3
Cash flow in year 0 = $-276,000
Cash flow in year 1 = $ 196,000
Cash flow in year 2 = 76,000
Cash flow in year 3 = 64,000
I = 9%
NPV = 17,203.94
Project c3 should be acquired because it has the highest NPV.
To find the NPV using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
To find the IRR using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
I hope my answer helps you