CengageNOWv2 | Online teachin X + -CD v2.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogress=false Q X H G O A T Paused Week 5 CNOW Assignment 3. Yes v , the required rate of return will be recovered. 1. MP.NPV.AND.IRR 2. MP.PAYBACK.AND.AVG.RA... 4. A positive v NPV in excess of the initial investment and required rate of return has been achieved. 3. MP.TIME.VALUE.OF.MONEY Feedback Check My Work Click on the Present Value of an Annuity of $1 at Compound Interest link and look for the intersection of the number of years row and the required rate of return column. Part Three Present Value Index When funds for capital investments are limited, projects can be ranked using a present value index. A project with a negative net present value will have a present value index below 1.0. Also, it is important to note that a project with the largest net present value may, in fact, return a lower present value per dollar invested. Let's look at an example of how to determine the present value index. The company has a project with a 5-year life, an initial investment of $220,000, and is expected to yield annual cash flows of $55,000. Whathat is the present value index of the project if the required rate of return is set at 10%? Total present value of net cash flows Present value index Initial investment Calculation Steps Note: Round total present value of net cash flows and initial investment to nearest dollar. Round present value index to two decimal places. $ 208,493 X Present value index = 220,000 0.95 V Feedback Check My Work To calculate the total present value of net cash flows, find the correct present value discount factor. Then multiply it by the annual cash flow for the project. Part Four Internal Rate of Return Method The internal rate of return (IRR) method uses present value concepts to compute the rate of return from a capital investment proposal based on its expected net cash flows. This method, sometimes called the time-adjusted rate of return method, starts with the proposal's net cash flows and works backward to estimate the proposal's expected rate of return. Let's look at an example of internal rate of return calculation with even cash flows. Progress: 1/3 items Check My Work Next Assignment Score: 99.07% Email Instructor Save and Exit Submit Assignment for Grading 10:00 AM