Question

Present Value Index Tasty Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows: Des Moines Cedar Rapids Total present value of net cash flow $273,520 (263,000) $297,350 (313,000) Amount to be invested (313 Net present value $10,520 $(15,650) a. Determine the present value index for each proposal. Round your answers for the present value index to two decimal places. Des Moines Cedar Rapids | Total present value of net cash flow Amount to be invested ी Present value index b. Which location does your analysis support? (If both present value indexes are the same, either location will grade as correct.) , because the net present value index is

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

B Answer Parta) Total Present Value of net cash flow Amount to be invested Present value index Des Moines 273520 263000 1.04 (273520/263000) Cedar Rapids 297350 313000 0.95 (297350/313000) For mula for present value index = Present value of net cash flow / amount to be invested Part b) Des Moines because the net present value index is 1.04:1 Explanation While selecting a project, the project with higher profitability index is selected.