Problem
A project has estimated annual net cash flows of $31,000 for 10 years and is estimated to cost $201,910. Assume a minimum acceptable rate of return of 10%. Use thePresent Value of an Annuity of $1 at Compound Interest table below.
|
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
|
2.402
|
2.283
|
2.106
|
|
4
|
3.465
|
3.170
|
3.037
|
2.855
|
2.589
|
|
5
|
4.212
|
3.791
|
3.605
|
3.352
|
2.991
|
|
6
|
4.917
|
4.355
|
4.111
|
3.784
|
3.326
|
|
7
|
5.582
|
4.868
|
4.564
|
4.160
|
3.605
|
|
8
|
6.210
|
5.335
|
4.968
|
4.487
|
3.837
|
|
9
|
6.802
|
5.759
|
5.328
|
4.772
|
4.031
|
|
10
|
7.360
|
6.145
|
5.650
|
5.019
|
4.192
|
Determine (1) the net present value of the project (if 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.