Hot on the Spot Doughnuts has computed the A method of analysis of proposed capi

Question

Hot on the Spot Doughnuts has computed the A method of analysis of proposed capital investments that focuses on the present value of the cash flows expected from the investments.net present value for capital expenditure at two locations. Relevant data related to the computation are as follows:

a. Determine the present value index for each proposal. Round your answer for the present value index to two decimal places.

b. Which location does your analysis support? (If both present value indexes are the same, either location will grade as correct.)

Mission City

Cedar Rapids

Mission City Cedar Rapids Total present value of net cash flow $263,840 $336,960 Less amount to be invested 272,000 324,000 Net present value $(8,160) $12,960

Explanation / Answer

Hence Cedar Rapids must be supported having higher PI.

Mission City Cedar Rapids Total present value of net cash flow 263840 336960 Amount to be invested 272000 324000 PI(Total present value of net cash flow/Amount to be invested) (263840/272000) =0.97 (336960/324000) =1.04

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