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 altermative is $88,000 and $81,300, respectively. The present value of cash inflows and outflows for the second altemative is $226,000 and $218,100, respectively. Required a. Calculate the net present value of each investment opportunity Net Present Value Alternative 1 Alternative 2 b. Calculate the present value index for each investment opportunity, (Round your answers to 2 decimal places.) Present Value Index Alternative 1 Alternative 2 c. Indicate which investment will produce the higher rate of return Alternative 1 Alternative 2

Explanation / Answer

c. Alterenative 1

Net Present Value = Cash Inflows - Cash Inflows Alternative 1 88000-81300 6700 Alternative 2 226000-218100 7900 Present Value Index Alternative 1 88000/81300 1.08 Alternative 2 226000/218100 1.036

c. Alterenative 1

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