O htps/mewconnect.mhedue Help Save & E 0 Che Exercise 16-7 Using the present val

Question

O htps/mewconnect.mhedue Help Save & E 0 Che Exercise 16-7 Using the present value index LO 16-2 Finch Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the frst alternative s $155.000 and $112,000, respectively. The present value of cash inflows and $277,500 respectively outflows for the second alternative is $330,000 and Required a. Calculate the net present value of each investment opportunity. (Negative amounts should be indicated by a minus sign) b. Calculate the present value index for each investment opportunity (Round "Pvr to 2 decimal places) c. Indicate which investment will produce the higher rate of return Atternative 2 (NPV) b. Aternative 1 (PVI Alternative 2 (PVI) cThe investrient that will produce the higher rate of returm arch

Explanation / Answer

Question 1:

Net present value formula = Present value of Inflows - Present value of outflows

Question 2:

Present value index formula: Net present value / present value of outflows

Question 3:

The investment that has higher NPV will produce higher rate of return. So Alternative 2 produces higher rate of return.

Particulars Calculation Amount Alternative 1 NPV $155000 - $112000 $43,000 Alternative 2 NPV $330000 - $277500 $52,500

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