Net Present Value A project has estimated annual net cash flows of $40,000 for f

Question

Net Present Value

A project has estimated annual net cash flows of $40,000 for four years and is estimated to cost $131,674.225. 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.

(2) Present value index

Can someone help me find the Present value index?

Thank you.

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 4.192

Explanation / Answer

cash outflow =$ (131,674.225)

cash inflow = $ 40,000 per year

present value of cash inflows @ 6% for four years =$ 40,000*3.465

= $ 138,600

npv = present value of cash inflow- present value of cash outflow

= $ 138,600-$ 131,674.225

= $ 6,925.775

present value index = npv /intial cash outlay

= 6,925.775/131,674.225

= 0.0526

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