Question

usybib T opic: Week 3 - Article Spinning... Plagiarism Checke... Plagly P lagly ! Apps Amal Keynesian vs Clas Calculator Part Five APPLY THE CONCEPTS: Net present value and Present value index Rydell Inc. is looking to invest in Project A or Project B. The data surrounding each project is provided below. Rydell's cost of capital is 8%. Project A Project B This project requires an initial investment of $167,500. The project will have a life of 8 years. Annual revenues associated with the project will be $130,000 and expenses associated with the project will be $35,000. This project requires an initial investment of $137,500. The project will have a life of 7 years. Annual revenues associated with the project will be $109,000 and expenses associated with the project will be $60,000. Calculate the net present value and the present value index for each project using the present value tables provided below. Present Value of $1 (a single sum) at Compound Interest. Present Value of an Annuity of $1 at Compound Interest. Note: • Use a minus sign to indicate a negative NPV. • If an amount is zero, enter "o". • Enter the present value index to 2 decimals. Project A Total present value of net cash flow Project B Amount to be invested Net present value Check My Work All work saved Email Instructor Save and Exit

Answer 1

D C Project - A Project - B $ 167,500 $ 137,500 1 1 2 Initial Investment 3 Life of Project 4 Annual Revenue 5 Less: Expenses 6 Net Cash flows 7 Cost of Capital 8 PVAF 130,000 35,000 95,000 $ $ $ 109,000 60,000 49,000 8% 5.20637 E F PVF @ 8% for $1 | 0.92593 0.85734 0.79383 0.73503 0.68058 0.63017 0.58349 0.54027 8% L 5.74664 9 10 Calculation of Net Present Value 11 Project - A Project - B 12 Present value of net cash flow $ 545,931 $ 255,112 13 Less: Amount to be invested $ 167,500 $ 137,500 14 Net Present Value $ 378,431 $ 117,612 15

18 2 А B DE F. Project - A Project - B PVF @ 8% for $1 2 Initial Investment 167500 137500 =1/POWER(1.08,E2) 3 Life of Project =1/POWER(1.08,E3) 4 Annual Revenue 130000 109000 =1/POWER(1.08,E4) 5 Less: Expenses 35000 60000 =1/POWER(1.08,E5) 6 Net Cash flows =B4-B5 =C4-C5 =1/POWER(1.08,E6) 7 Cost of Capital 0.08 0.08 1=1/POWER(1.08.E7) 8 PVAF =SUM(F2:F9) =SUM(F2:F8)| =1/POWER(1.08.18) =1/POWER(1.08.E9) 10 Calculation of Net Present Value Project - A Project - B 12 Present value of net cash flow =B6*B8 =C6*C8 13 Less: Amount to be invested =B2 =C2 14 Net Present Value =B12-B13 =C12-C13 16 9 11 15

If you have any doubts ask in comments section

Do rate the answer