Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

How do I find the Present Value Index with this information that is given? Krause Inc. is looking to invest in Project A or Project

How do I find the Present Value Index with this information that is given?

Krause Inc. is looking to invest in Project A or Project B. The data surrounding each project is provided below. Krause's cost of capital is 11%.

Project A

This project requires an initial investment of $167,500. The project will have a life of 6 years. Annual revenues associated with the project will be $130,000andexpenses associated with the project will be $35,000.

  1. Total present value of net cash flow=401,945
  2. Amount to be invested=$167,500
  3. Net present value=234,445

Project B

This project requires an initial investment of $137,500. The project will have a life of 4 years. Annual revenues associated with the project will be $111,000andexpenses associated with the project will be $60,000.

  1. Total present value of net cash flow=158,202
  2. Amount to be invested= $137,500
  3. Net present value=20,702

Present Value Index

Project A:

Project B:

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cornerstones Of Financial Accounting

Authors: Jay Rich, Jeff Jones

3rd Edition

1285424409, 978-1285423678

More Books

Students also viewed these Accounting questions

Question

A greater tendency to create winwin situations.

Answered: 1 week ago

Question

Improving creative problem-solving ability.

Answered: 1 week ago