APPLY THE CONCEPTS: Net present value and Present value index McCall Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. McCall's cost of capital is 8%. Project A This project requires an initial investment of $170,000. The project will have a life of 8 years. Annual revenues associated with the project will be $130,000 and expenses associated with the project will be $35,000. Project B This project requires an initial investment of $130,000. The project will have a life of 7 years. Annual revenues associated with the project will be $107,000 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. Total present value of net cash flow Amount to be invested Net present value Project A Project B Present value index: Project A Project B Based upon net present value, which project has the more favorable profit prospects? Project A Based upon the present value index, which project is ranked higher? Project A Year 5% 6% 7% 8% 1 0.952 0.943 0.935 0.926 2 1.859 1.833 1.808 1.783 3 2.723 2.673 2.624 2.577 4 3.546 3.465 3.387 3.312 5 4.329 4.212 4.100 3.993 Present Value of an Annuity of $1 at Compound Interest 9% 10% 11% 12% 13% 0.917 0.909 0.901 0.893 0.885 1.759 1.736 1.713 1.690 1.668 2.531 2.487 2.444 2.402 2.361 3.240 3.170 3.102 3.037 3.890 3.791 3.696 3.605 14% 15% 0.877 0.870 1.647 1.626 2.322 2.283 2.974 2.914 2.855 3.517 3.433 3.352 6 5.076 4.917 4.767 4.623 7 5.786 5.582 5.389 5.206 8 6.463 6.210 5.971 5.747 9 7.108 6.802 6.515 5.535 6.247 5.995 10 7.722 7.360 7.024 6.710 4.486 4.355 4.231 4.111 5.033 4.868 4.712 4.564 4.423 4.288 4.160 5.335 5.146 4.968 4.799 4.639 4.487 5.759 5.537 5.328 5.132 4.946 4.772 6.418 6.145 5.889 5.650 5.426 5.216 5.019 3.998 3.889 3.784 Present Value of $1 at Compound Interest Year 5% 10% 1 2 0.907 3 0.864 4 0.823 0.792 0.763 5 0.784 6 0.746 0.705 0.666 0.630 0.596 0.564 7 0.711 0.665 0.623 0.583 0.547 0.513 6% 7% 8% 9% 11% 12% 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.507 0.480 0.456 0.432 0.452 0.425 0.400 0.376 13% 14% 15% 0.535 0.482 8 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 9 10 0.645 0.614 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.333 0.308 0.284 0.247