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APPLY THE CONCEPTS: Net present value and Present value index Sutherland Inc. is looking to invest in Project A or Project B. The data surrounding
APPLY THE CONCEPTS: Net present value and Present value index
Sutherland Inc. is looking to invest in Project A or Project B. The data surrounding each project is provided below. Sutherland's cost of capital is 10%. | |
Project A | Project B |
This project requires an initial investment of $172,500. The project will have a life of 3 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 5 years. Annual revenues associated with the project will be $115,000 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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