Question

APPLY THE CONCEPTS: Net present value and Present value index Underwood Inc. is looking to invest...

APPLY THE CONCEPTS: Net present value and Present value index

Underwood Inc. is looking to invest in Project A or Project B. The data surrounding each project is provided below. Underwood's cost of capital is 11%.

Project A

Project B

This project requires an initial investment of $172,500. The project will have a life of 6 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 $130,000. The project will have a life of 4 years. Annual revenues associated with the project will be $113,000 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 "0".
Enter the present value index to 2 decimals.
Project A Project B
Total present value of net cash flow $ $
Amount to be invested
Net present value $ $
Present value index:
   Project A
   Project B

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