1a | ||
Wind Turbines | Biofuel Equipment | |
Present value of annual net cash flows | 760800 | 1363100 |
Less: amount to be invested | 685200 | 1113270 |
Net Present value | 75600 | 249830 |
1b | ||
Present Value Index | ||
Wind Turbines | 1.11 | =760800/685200 |
Biofuel Equipment | 1.22 | =1363100/1113270 |
2 | ||
Wind Turbines | Biofuel Equipment | |
Present value factor for an annuity of $1 | 2.855 | 2.589 |
Internal rate of return | 15% | 20% |
3 | ||
The net present value, present value index and internal rate of return all indicate that Biofuel Equipment is a better financial opportunity compared to the Wind Turbines. | ||
Workings: | ||
Wind Turbines | Biofuel Equipment | |
Present value of annual net cash flows | =240000*3.170 | =430000*3.170 |
Wind Turbines | Biofuel Equipment | |
Present value factor for an annuity of $1 | =685200/240000 | =1113270/430000 |
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The...
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