Drinkwater Company has a choice of two investment alternatives. The present valu

Question

Drinkwater Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $97,000 and $90,500, respectively. The present value of cash inflows and outflows for the second alternative is $220,000 and $212,200, respectively.

Calculate the net present value of each investment opportunity

Calculate the present value index for each investment opportunity. (Round your answers to 2 decimal places.)

Drinkwater Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $97,000 and $90,500, respectively. The present value of cash inflows and outflows for the second alternative is $220,000 and $212,200, respectively.

Calculate the net present value of each investment opportunity

Calculate the present value index for each investment opportunity. (Round your answers to 2 decimal places.)

Explanation / Answer

First alternative

Net present value = Present value of cash inflow - present value of cash outflow

= 97000 - 90500 = $ 6500

Second alternative

net present value = 220000 - 212200

= $ 7800

Present value index = 1+ net present value / initial investment

first alternative

1+ 6500 / 90500 = 1.07

second alternative

1+ 7800 / 212200 = 1.04

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