Net Present Value Method, Internal Rate of Return Method, and Analysis The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $260,000 $520,000 2 260,000 520,000 3 260,000 520,000 4 260,000 520,000 Present Value of an Annulty of $1 at Compound Interest 69 Year 1296 15% 20% 10% 0.909 0.893 0.943 0.870 0.833 1 1.528 1.626 2 1.833 1.736 2.487 2.283 1.690 2.402 3.037 3 2.106 2.673 4 2.589 3.465 3.170 2.855 3.352 2.991 5 4.212 3.791 3.605 4.355 4.111 3.784 6 4.917 3.326 7 4.160 3.605 5.582 4.868 4.564 5.335 8 4,487 4.968 3.837 6.210 6.802 5.328 4.772 4.031 5.759 9 10 7.360 6.145 5.650 5.019 4.192 The wind turbines require an investment of 1073,140, while the biof equipment requires an investment of 11,414,600. Now from the Required: ia. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of 1 in the catre ord, use the minus up to Indicate a negative net present value. If required, round to the nearest whole dollar Wind Turbines Biofuel Equipment Present value of annual net cash flows Accounting med Less amount to be invested Net present value 1b. Compute a present value index for each project. If required, round your answers to two decimal places Present Value Index Wind Turbines Biofuel Equipment 2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of 51 and (b) using the present value of an annuity of the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent Wind Turbines Biofuel Equipment Present value factor for an annuity of $1 Previous Wind Turbines 1a. Compute the net present value for each project. Use a rate of 10% and the present value of an oruity of 51 in the table above. It required, use the minus son to Indicate a negative net present value. If required, round to the nearest whole dollar. Biofuel Equipment Present value of annual net cash flows Less amount to be invested Net present value 1b. Compute a present value index for each project. If required, round your answers to two decimal places, Present Value Index Wind Turbines Biofuel Equipment 2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of 51 the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent Wind Turbines Biofuel Equipment Present value factor for an annuity of $1 Internal rate of return % is a better financial opportunity compared to the 3. The net present value, present value Index, and internal rate of return all indicate that the although both investments meet the minimum return criterion of 10%
