Question

A project has estimated annual net cash flows of $12,500 for ten years and is estimated to cost $37,500. Assume a minimum acceptable rate of return of 20%. 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	3.353	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

Determine (a) the net present value of the project and (b) the present value index. If required, use the minus sign to indicate a negative net present value.

Net present value of the project (round to the nearest dollar)	$
Present value index (rounded to two decimal places)

Answer 1