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Answer:
Tonight's the Night should be given the first priority because its NPV is the largest
On the Beach can be funded because its NPV is positive. Time Fades Away should not be funded because the NPV is negative
Explanation:
To determine which products to be invested in, the npv of each of the projects should be determined.
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Time Fades Away
Cash flow in year 0 = $-600,000
Cash flow in year 1 = 600,000
Cash flow in year 2 = 75,000
Cash flow in year 3 = 20,000
Cash flow in year 4 = 15,000
Cash flow in year 5 = 10,000
I = 20%
NPV = $-25,090.02
On the Beach
Cash flow in year 0= $-400,000
Cash flow in year 1 = 400,000
Cash flow in year 2 = 100,000
Cash flow in year 3 = 25,000
Cash flow in year 4 = 20,000
Cash flow in year 5 = 10,000
I = 20%
NPV = $30,909.21
Tonight's the Night
Cash flow in year 0 = $-200,000
Cash flow in year 1 = 200,000
Cash flow in year 2 = 125,000
Cash flow in year 3 = 75,000
Cash flow in year 4 = 20,000
Cash flow in year 5= 10,000
I = 20%
NPV = $110,538.84
Only projects with a positive NPV should be accepted. A project with a negative NPV should not be chosen because it isn't profitable.
When choosing between positive NPV projects, choose the project with the highest NPV first because it is the most profitable.
Tonight's the Night should be given the first priority because its NPV is the largest
Time Fades Away shouldn't be accepted because the NPV is negative. The other two projects should be accepted
To find the NPV using a financial calculator:
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
Based on the NPVs calculated, the two projects that should be funded and their order of priority should be:
- 1. Tonight's the Night.
- 2. On the Beach.
The project with the highest Net Present Value (NPV) should be chosen:
Rate that should be used:
= Rate of return - Inflation
= 20% - 2%
= 18%
Time fades away:
= Present value of inflows - Outflows.
= 600,000 / 1.18% + 75,000 / 1.18%² + 20,000 / 1.18%³ + 15,000 / 1.18%⁴ + 10,000 / 1.18%⁵ - 600,000
= -$36,300
On the Beach:
= 400,000 / 1.18% + 100,000 / 1.18%² + 25,000 / 1.18%³ + 20,000 / 1.18%⁴ + 10,000 / 1.18%⁵ - 400,000
= $21,450
Tonight's the Night:
= 200,000 / 1.18% + 125,000 / 1.18%² + 75,000 / 1.18%³ + 25,000 / 1.18%⁴ + 10,000 / 1.18%⁵ - 200,000
= $103,950.
Tonight's the Night has the highest NPV and should be funded first. Time Fades Away has a negative NPV and should not be funded.
Find out more on NPV at https://brainly.com/question/13228231.
