Exhibit 8-3
Yale Inc $\text {Factors: Present Value of \$1}$

question 37

Multiple Choice

Exhibit 8-3
Yale Inc.has two independent investment opportunities,each requiring an initial investment of $260,000.The company's required rate of return is 10 percent.The cash inflows for each investment are provided below.
$$\begin{array} { c c c } & \text { Investment A } & \text { Investment B } \\ \text { Year 1 } & \$ 140,000 & \$ 20,000 \\\text { Year 2 } & 100,000 & 40,000 \\\text { Year 3 } & 60,000 & 60,000 \\\text { Year 4 } & 40,000 & 8 0 , 0 0 0 \\\text { Year 5 } & 20,000 & 160,000 \\\text { Total inflows } & \$ 3 6 0 , 0 0 0 & \$ 3 6 0 , 0 0 0 \end{array}$$ $\text {Factors: Present Value of \$1}$ $\quad$$\text {Factors: Present Value of an Annuity}$
$\quad$$\quad$$(r=10 \%)$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$(r=10 \%)$
$\begin{array}{llll}\text { Year 0 } & 1.0000 & & \\\text { Year 1 } & 0.9091 &\quad\quad\quad\quad\quad\quad \text { Year } 1 & 0.9091 \\\text { Year 2 } & 0.8264 & \quad\quad\quad\quad\quad\quad\text { Year 2 } & 1.7355 \\\text { Year 3 } & 0.7513 & \quad\quad\quad\quad\quad\quad\text { Year 3 } & 2.4869 \\\text { Year 4 } & 0.6830 &\quad\quad\quad\quad\quad\quad \text { Year 4 } & 3.1699 \\\text { Year 5 } & 0.6200 &\quad\quad\quad\quad\quad\quad \text { Year } 5 & 37008\end{array}$
-Refer to Exhibit 8-3.Calculate the net present value for each investment.Should the company invest in both projects?

• A)No,they should not invest in either project since both have negative net present values.
• B)Yes,they should invest in both projects since both have positive net present values.
• C)The company should only invest in Investment A,since it is the only project that has a positive net present value.
• D)There is not enough information to answer this question.
• E)None of the answer choices is correct.

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Definitions:

Period Costs

Period costs are those expenses not directly tied to the production process and include marketing, administration, and other overhead costs.

Beginning Work in Process Inventory

Beginning work in process inventory refers to the valuation of materials, labor, and overhead costs that have been partially completed but are not yet finished goods at the start of an accounting period.

Ending Work in Process Inventory

The value of goods in production but not yet completed by the end of an accounting period.

Cost of Goods Manufactured

The total cost incurred by a company to produce goods, including raw material, labor, and overhead costs, in a specific period.