Question

Net Present Value A project has estimated annual net cash flows of $5,000 for two years and is estimated to cost $36,700. Assume a minimum acceptable rate of return of 6%. Use the Present Value of an Annuity of $1 at Compound Interest table below.

Present Value of an Annuity of $1 at Compound Interest

Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

Determine (1) the net present value of the project (if required, round to the nearest dollar) and 2) the present value index (rounded to two decimal places). If required, use the minus sign to indicate a negative net present value.

(1) Net present value of the project $

(2) Present value index

Answer 1

1) Net present value = Present value of cash inflow-Present value of cash outflow

= (5000*1.833)-36700

Net present value = -27535

2) Present value index = Present value of cash inflow/Present value of cash outflow

= (5000*1.833)/36700

Present value index = 0.25 Times