Net Present Value A project has estimated annual net cash flows of $10,000 for s

Question

Net Present Value A project has estimated annual net cash flows of $10,000 for six years and is estimated to cost $45,000. Assume a minimum acceptable rate of return of 20%. Use the Present Value of an Annuity of $1 at Compound Interest table below. Present Value of an Annuity of $1 at Compound Interest 6 ,% 10% 12% 15% 20 1 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 s 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.60s 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 4.192 3 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. Net present value of the project Present value index Check My Work

Explanation / Answer

a. NPV = Annual Cash Flow * PVAF ( 20%, 6 Years) - Cost

NPV = $10000 * 3.326 - $45000

NPV = $33260 - $45000

NPV = - $11740

b. PV Index = PV Of Annual Cash Flow / Cost

PV Index = $33260 / $45000

PV Index = $33260 / $45000

PV Index = 0.74

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