The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:
Year  Wind Turbines  Biofuel Equipment  
1  $170,000  $320,000  
2  170,000  320,000  
3  170,000  320,000  
4  170,000  320,000 
The wind turbines require an investment of $516,290, while the biofuel equipment requires an investment of $913,600. No residual value is expected from either project.
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  3.353  2.991 
6  4.917  4.355  4.111  3.785  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 
Required:
1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar.
Wind Turbines  Biofuel Equipment  
Present value of annual net cash flows  $  $ 
Less amount to be invested  
Net present value  $  $ 
1b. Compute a present value index for each project. If required, round your answers to two decimal places.
Present Value Index  
Wind Turbines  
Biofuel Equipment 
2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent.
Wind Turbines  Biofuel Equipment  
Present value factor for an annuity of $1  
Internal rate of return  %  % 
3. The net present value, present value index, and internal rate of return all indicate that the is/are a better financial opportunity compared to the , although both investments meet the minimum return criterion of 10%.
can you explain the answer
Wind Turbines  Biofuel Equipment  
1a. 
Present value of annual net cash flows 
$170000*3.170 = $538900 
$320000*3.170 = $1014400 
Amount to be invested 
$516,290  913,600  
Net present value 
$22610 
$100800 

1b.  Present Value Index = Present value of annual net cash flows/Amount to be invested  1.04  1.11 
Wind Turbines  Biofuel Equipment  
2. 
Amount to be invested 
$516,290  913,600 
Divide by: Annual cash inflows 
170000 
320000  
Present value factor for an annuity of $1  3.037  2.855  
Internal rate of return  12%  15% 
3. The net present value, present value index, and internal rate of return all indicate that the Biofuel Equipment is a better financial opportunity compared to the Wind Turbines , although both investments meet the minimum return criterion of 10%.
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