A project has estimated annual net cash flows of $47,000 for four years and is e

Question

A project has estimated annual net cash flows of $47,000 for four years and is estimated to cost $142,235. Assume a minimum acceptable rate of return of 15%. Use the Present Value of an Annuity of $1 at Compound Interest table below. Present Value of an Annuity of $1 at Compound Interest 1090 20% 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 2.589 4.212 3.791 3.605 3.352 2.991 3.326 5.582 4.868 4.5644.160 3.605 3.837 6.802 5.759 5.3284.772 4.031 7.360 6.145 5.650 5.019 4.192 Year 6% 12% 1596 0.943 0 0.909 0.893 0.870 3.465 3.170 3.037 2.855 4.917 4.355 3.784 7 6.210 5.335 4.968 4.487 9 10 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 (1) Net present value of the project (2) Present value index

Explanation / Answer

Present value of inflows=$47000*Present value of annuity factor(15%,4)

=$47000*2.855=$134185

1.NPV=Present value of inflows-Present value of outflows

=(134185-142235)=($8050)(Negative).

2.PI=Present value of inflows/Present value of outflows

=(134185/142335)=0.94(Approx).

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