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Calculator Part Five APPLY THE CONCEPTS: Net present value and Present value index Underwood Corporation is looking to invest in Project A or Project B. The data surrounding each project is provided below. Underwood's cost of capital is 11%. Project A Project B This project requires an initial investment of This project requires an initial investment of $170,000. The project will have a life of 6 $132,500. The project will have a life of 4 years. Annual revenues associated with the years. Annual revenues associated with the project will be $130,000 and expenses project will be $105,000 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 $ 401 X X Check My Work Next. If an amount is zero, enter On. . Enter the present value index to 2 decimals. Project A Project B Total present value of net cash flow 401 X 139 X Amount to be invested 165 X 140 X Net present value Present value index: Project A 2.4 X Project B 1 X 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 V Feadonck " Chook My Work Subtract the expenses from the revenues to determine net cash flow for each year Singe this is an annuity cash flow, use the appropriate table to look up the present value factor for the project life and required rate of return. Check My Work NextPart Six APPLY THE CONCEPTS: Internal rate of return The Underwood 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 $254,300. The Project B's revised investment is $116,700. project's life and cash flow have changed to 6 The project's life and cash flow have changed years and $55,000, respectively, while expenses to 5 years and $85,000 while expenses have been eliminated. reduced slightly to $55,000. Compute the internal rate of return factor for Project A and Project B and then identify each project's corresponding percentage from the PV ordinary annuity table. Note: Enter the IRR factor, to 5 decimal places. Project A: The calculated IRR factor is and this value corresponds to which percentage in the present value of ordinary annuity table? Project B: The calculated IRR factor is and this value corresponds to which percentage in the present value of ordinary annuity table? Check My Work "Next