Question

5. V The Bing Co. project has estimated annual net cash flows of $82000 for 5 years and is Tows of $82000 for 5 years and is estimated to cost $259000. Assume a minimum acceptable rate of return of . Assume a minimum acceptable rate of return of 12%. Using the present value table 4 uetermine (A) the net present value of the protect and (Bl the present value of the rounded to Two Places (16)

Answer 1

(A)

Net present value = present value of annual net cash flow - initial investment

= ($82000 x 3.60478) - $259000

= $295591.96 - $259000

= $36591.96

Where, PVAF(12%, 5) = 3.60478

(B)

present value index = present value of annual net cash flow/initial investment

= $295591.96/$259000

= 1.14