Norwood Inc., which has a hurdle rate o 12% s considering ree different independ

Question

Norwood Inc., which has a hurdle rate o 12% s considering ree different independent investment opportunities. ach project as a seven-year he annual cas flows and initial investment for each of the projects are as follows: (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.) Annual cash flows Initial investment Project AProject B Project C S131,470 $120,520 $109,560 320,000 300,000 230,000 a. What is the present value of the annual cash flows for each of the three projects? (Round your answers to the nearest dollar amount.) Present Value Project A Project B Project C b. What is the net present value of each of the projects? (Round your intermediate calculations and final answers to the nearest dollar amount.) Net Present Value Project A Project B Project C

Explanation / Answer

a) Project A Project B Project C Annual cash flows 131470 120520 109560 Pv value annuity factory n=7 i = 12% 4.56376 4.56376 4.56376 Present value of cashflows 599998 550024 500006 b) Present value of cashflows 599998 550024 500006 Initial investment 320000 300000 220000 Net present value 279998 250024 280006 c) Profitability index= present value of future cashflows / initial investment Present value of cashflows 599998 550024 500006 Initial investment 320000 300000 220000 Profitability index 1.87 1.83 2.27 d C A B

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