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NPV = Present value of cash inflows from project - Initial Investment. Solve for present value, then subtract initial investment to get answer for NPV then decide to accept or reject, if NPV is a positive number accept; if it is negative number then reject All projects have 8-year lives, an initial cost of $360,000, and annual cash inflows of $62,650. Find NPV for A, B, and then write whether you accept or reject (1)A: NPV Initial investment: $360,000 (2) Accept or reject Annual cash flow: $62,650 Life of project: 8 Cost of capital: 6% =$62,650 x (table value, 6%, 8 yrs) then subtract 360,000 NPV =$ B: NPV Initial investment: $360,000 Accept or reject Annual cash flow: $62,650 Life of project: 8 Cost of capital: 8% $62,650 x (table value, 8%, 8yrs) then subtract 360,000 NPV CNPV initial investment: $360,000 Accept or reject Annual cash flow: $62,650 Life of project: Cost of capital 10% 562,650 X (table value 109 Byes then subtract 360,000 NPV BroBook wind captured depreciation (14 points) Similar to E11-4 CHAPTER 10 Capital Budgeting Techniques 461 c. Using the payback period, which project should Bill choose? d. Do you see any problems with his choice? P10-5 NPV Calculate the net present value (NPV) for the following 15-year projects. Comment on the acceptability of each. Assume that the firm has a cost of capital of 9%. a. Initial investment is $1,000,000; cash inflows are $150,000 per year. b. Initial investment is $2,500,000; cash inflows are $320,000 per year. c. Initial investment is $3,000,000; cash inflows are $365,000 per year. P106 NPV for varying costs of capital Le Pew Cosmetics is evaluating a new fragrance- mixing machine. The machine requires an initial investment of $360,000 and will generate after-tax cash inflows of $62,650 per year for 8 years. For each of the costs of capital listed, (1) calculate the net present value (NPV), (2) indicate whether to accept or reject the machine, and (3) explain your decision. a. The cost of capital is 6%. b. The cost of capital is 8%. c. The cost of capital is 10%. P10-7 Net present value: Independent projects Using a 10% cost of capital, calculate the net present value for each of the independent projects shown in the following table, and indicate whether each is acceptable

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