Net Present Value A propect has estimated annual net cash flows of $5,00 for fiv

Question

Net Present Value A propect has estimated annual net cash flows of $5,00 for five years and s estimated to cost $30,000. Assume a minmum acceptable rate of return o of an Annuity of $1 at Compound Interest table below. 15% Use the Present VI e Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.4022.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.6053.352 2.991 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.56441603.605 6.210 5.335 4.968 4487 3.837 9 6.802 5.759 5.328 4.7724.031 10 7.360 6.145 5.650 5.019 4.192 Determine (3) the net present value of the project Oif 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 E

Explanation / Answer

1 Net Present Value Annual Net Cash Inflow $5000 Present value of annuity factor at 15% for 5 years 3.352 Total Present Value cash flows $16760 Less: Initial Investment $30000 Net Present Value ($13240) (2) Present Vlaue Index Present Value Index = Present Value Net Cash Inflows /Initial Investment   =$16760 /$30000 =0.56

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