APPLY THE CONCEPTS: Net present value and Present value index Darling Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. Darling's cost of capital is 11%. Project A Project B This project requires an initial investment of $175,000. 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 $135,000. The project will have a life of 4 years. Annual revenues associated with the project will be $109,000 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 95,000 x Amount to be invested -175,000 -135,000 Net present value Present value index: Project A O Project B Based upon net present value, which project has the more favorable profit prospects? Project A APPLY THE CONCEPTS: Net present value and Present value index Darling Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. Darling's cost of capital is 11%. Project A Project B This project requires an initial investment of $175,000. 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 $135,000. The project will have a life of 4 years. Annual revenues associated with the project will be $109,000 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 95,000 x Amount to be invested -175,000 -135,000 Net present value Present value index: Project A O Project B Based upon net present value, which project has the more favorable profit prospects? Project A
