A project has estimated annual net cash flows of $15,000 for two years and is es
ID: 2535020 • Letter: A
Question
A project has estimated annual net cash flows of $15,000 for two years and is estimated to cost $50,000. Assume a minimum acceptable rate of return of 6%. Use the Present Value of an Annuity of $1 at Compound Interest table below.
Determine (1) the net present value of the project (if required, round to the nearest dollar) and (2) the present value index (rounded to two decimal places). If required, use the minus sign to indicate a negative net present value.
Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192Explanation / Answer
cash outflow
-50000
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r = 6%
0
-50000
-50000
1
15000
14150.9434
2
15000
13349.9466
NPV =sum of present value of cash flow
-22499.11
Benefit cost ratio
sum of present value of cash inflow/cash outflow
(14150.94+13349.94)/50000
0.55
cash outflow
-50000
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r = 6%
0
-50000
-50000
1
15000
14150.9434
2
15000
13349.9466
NPV =sum of present value of cash flow
-22499.11
Benefit cost ratio
sum of present value of cash inflow/cash outflow
(14150.94+13349.94)/50000
0.55
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