Homework Answers
a. Net Present value = Present value of cash inflow - Present value of cash outflow
Alternative 1 (NPV) = $210000 - 185000 = $25,000
Alternative 2 (NPV) = $385000 - 305000 = $80,000
b. Present value index = Present value of cash inflow / Present value of cash outflow
Alternative 1 (NPV) = $210000 / 185000 = 1.14
Alternative 2 (NPV) = $385000 / 305000 = 1.26
c. Alternative 2 , will produce higher rate of return.
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