A project has estimated annual cash flows of $95,000 for four years and is estim
ID: 2532465 • Letter: A
Question
A project has estimated annual cash flows of $95,000 for four years and is estimated to cost $260,000. Assume a minimum acceptable rate of return of 10%. Using the following tables: Present Value of $1 at Compound Interest Year 6% 10% 12% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 a. Determine the net present value of the project. $ b. Determine the present value index. Round your answer to two decimal places.
Explanation / Answer
(A)Present value of cash inflows: $95000*3.170= $301150
Present value of cash outflow= $260000
Net present value = $41150
(B) Present value index= PV of future cash flows ÷ Initial investment
=$301150/$260000=1.158 or 1 approx
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