A project has estimated annual cash flows of $90,000 for four years and is estim

Question

A project has estimated annual cash flows of $90,000 for four years and is estimated to cost $250,000. Assume a minimum acceptable rate of return of 12%. Using the tables determine the (a) net present valve of the project and (b) the present valve index, rounded to two decimal places.
Table present valve of $1 at compound interest
Year 6%     10%    12%  
1       .943   .909     .893 2       .890   .826     .797 3       .840   .751     .712 4       .792   .683     .636 5       .747   .621     .567 Table present valve of an annuity of $1 at compound interest Year       6%       10%         12% 1          .943       .909       .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 project has estimated annual cash flows of $90,000 for four years and is estimated to cost $250,000. Assume a minimum acceptable rate of return of 12%. Using the tables determine the (a) net present valve of the project and (b) the present valve index, rounded to two decimal places.
Table present valve of $1 at compound interest
Year 6%     10%    12%  
1       .943   .909     .893 2       .890   .826     .797 3       .840   .751     .712 4       .792   .683     .636 5       .747   .621     .567 Table present valve of an annuity of $1 at compound interest Year       6%       10%         12% 1          .943       .909       .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 1          .943       .909       .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

Explanation / Answer

year present value factor cash inflow present value 1 0.893       90000      80370 2 0.797       90000      71730 3 0.712       90000      64080 4 0.636       90000      57240 Total Present value 273420 Present value index = present value of cash flow / initial investment 1.09 present value of annuity of $1 for 4 years at 12% 3.037 For $90,000, it will be 273330 Present value index = present value of cash flow / initial investment 1.09

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