Norwood, Inc., which has a hurdle rate of 12%, is considering three different in

Question

Norwood, Inc., which has a hurdle rate of 12%, is considering three different independent investment opportunities. Each project has a seven-year life. The annual cash 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.)

Project A Project B Project C Annual cash flows $ 131,660 $ 120,710 $ 109,750 Initial investment 321,900 301,900 231,900 Present Value Project A Project B Project C

Explanation / Answer

a) present value = annual cash flow *4.56376 project A= 600865 project B 550891 project c 500873 b) Net present value = initial investment - PV project A= 278965 project B 248991 project c 268973 c) profitability index =PV of future cash flow/initial investment project A= 1.87 project B 1.82 project c 2.16 d) C,A,B

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