A project has estimated annual net cash flows of $10,000 for ten years and is es

Question

A project has estimated annual net cash flows of $10,000 for ten 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 4.192

Explanation / Answer

1 Present value of cash flows 73600 =10000*7.36 Investment -50000 Net present value of the project 23600 2 Present value index = 73600/50000= 1.47

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