het prantu (NV) that can be the financial mines the value of all cash with Do projects and measures that the cast of the Tentarer oft bed. The the minimum perute of return that an estimant must for it to make Manche that the entire che can be recommend short-term rest IV then the project should be accepted, then there should be rejected Streamehe The chase with are that an investment of 200,000, and it In the 12 Present of Net Prent Value - 64.000 > 300,000 the com the native Yeathered rute of return web recovered Part Three Present Value Index when und for capital investments are limited projects can be ranked using a present value inde project with a negativne present value was haver value index blow 10. Ali important to note that project with the largest net present value may, in fact, return a lower recent value see or invested look at an example of how termine the entender The company has with year, an investment of $170,000, and spectad to vale annual saws of 0.100. What the prevalence rowered to Precent value index Yotal present value of cash flow Invitia investment Calcul Note Round rent value of net cash flows and initialement tout Round rent de tota decima Present value index A company has a project with a 1-year requiring an investment of 1215,000, and is expected to yield annualchows of 354,000. What is the internal rate of retur? IRR Factor Investment Annual cash news actorThis is the factor which investment. This is the present voor the value of each othews site Det value of an any of 5 with a project. If of the "Annual Cash Flows dollar in order to find the Investment in front at the This is the amount of percentage which arend being of the we, the recent shows to be the internal rate of reti Vator 1.000 received annually a result of the project VAC IRR Fact rounded to deal The factors to which are the value ofiary nu? C y War Newt Project A Projects This project requires an initial Investment of This project requires an initial investment of $165.000. The project will have a we of $135,000. The project will have a gre of 7 years. Annual revenues associated with the Years Annual revenues associated with the project will be $130,000 and expenses project will be $107.000 and expenses associated with the project will be $35,000 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 a sing um compound inwest Weer Value of an Annuity of Stat Compound Interest NO Use minus sign to indicate negative NPV. Iran amount is zero, enter - Enter the present value index to 2 dedmals Project A Project Totat present valuant cash flow Amount to be invested Net Dreat value VODI 000 Proiect Project Check My Work Part SEX APPLY THE CONCEPTS terem The Rydell purchasing department has made revisions to their costs and annual cash flows for Project A and Project was outlined below Project A Project Project A's Investment 230,100. The Project's revised investment is 126,400 project and cash now have changed to these and have changed and S1,560, pect, while to years and 87,500 when reduced highly to $55.000 Come the more of return factor for et And then then identify the condingagerum the warranty Note Enter the costos decale Project A Theated and the value which contain the present of an annuity Project Themed and care where the mental for Let's look at a net present value example using the present value of an ordinary annuity table. The company has a project with a 5-year life that requires an initial investment of $200,000, and is expected to yield annual cash flows of $64,000. What is the net present value of the project if the required rate of return is set at 12%? Calculation Steps Present Value of an Annuity of 51 at Compound Interest Net Present Value ($ 64,000 200,000 Note: Round your answer to the nearest whole dollar What NPV does the previous calculation yield? Based on the NPV computed above, what is indicated? 1. The project is profitable 2 Yes the initial investment will be recovered 3 Yes the required rate of return will be recovered NPV in excess of the initial investment and required rate of return has been A positive achieved 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 S-year, an initial investment or $170,000, and is expected to yield annual cash flow of $50.500. Whathat is the present value index of the project of the required rate of retum is set at 1467 Present value index Total present value of net cash flows Initial investment Calculation to Note: Round total present walue of net cash flows and initial investment to nearest dollar. Round present value index two decimal places Present value inden Part Four Internal Rate of Retum 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 or return calculation with even cash flows. A company has a project with a 5-year it, requiring an initial investment of $215,600, and is expected to yould annuat cash rows of $54,000. What is the internal rate or return? IRR Factor Investment Annual cash Pows IRR Factor: This is the factor which investment. This is the present you'll use on the table for the value of cash outflows associated present value of an annuity or $1 with a project. Ir all of the dollar in order to find the investment is up front at the percentage which corresponds to beginning of the project, the present the internal rate of return. value factor is 1.000. Annual Cash Flows: This is the amount of cash flows to be received annually as a result of the project IRR Factora Investment Annual cash flows IRR Factor: This is the factor which investment: This is the present you'll use on the table for the value of cash outflows associated present value of an annuity of $1 CAnnual Cash Flows: with a project. If all of the This is the amount of dollar in order to find the investment is up front at the cash flows to be percentage which corresponds to beginning of the project, the present received annually as the internal rate of return. value factor is 1.000. a result of the project. Calculation Steps Present Value of an Annuity of Si at Compound Interest. IRR Factor - . rounded to 6 decimals The calculated factor corresponds to which percentage in the present value of ordinary annuity table? % Project A Project B This project requires an initial investment of This project requires an initial investment of $165,000. The project will have a life of 8 $135,000. The project will have a life of 7 years. Annual revenues associated with the years. Annual revenues associated with the project will be $130,000 and expenses project will be $107,000 and expenses associated with the project will be $35,000. 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 Part Six APPLY THE CONCEPTS: Internal rate of retum The Rydell purchasing department has made revisions to their costs and annual cash flows for Project A and Project B, as outlined below. Project A Project B Project A's revised investment is $238.100. The Project B's revised investment $126,400 project's life and cash flow have changed to 6 The project's life and cash now have changed years and $51,500, respectively, while expenses to 5 years and $87,500 while expenses have been eliminated reduced slightly to $55,000 Compute the internal rate or return factor for project A and Projects and then identity each projecte corresponding percentage from the ordinary annuity table. Note: Enter the IRR factor, to decimal places Project At The calculated IRR actor is and this value corresponds to which percentage in the present value of ardinary and table> and this value corresponds to which percentage in the present value of ordinary annuity table? Project B: The calculated IRR factors F