1. Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company

   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	$270,000		$510,000
   2	270,000		510,000
   3	270,000		510,000
   4	270,000		510,000

   The wind turbines require an investment of $819,990, while the biofuel equipment requires an investment of $1,456,050. No residual value is expected from either project.

   Present Value of an Annuity of $1 at Compound Interest
   Year	6%	10%	12%	15%	20%
   1	0.943	0.909	0.893	0.870	0.833
   2	1.833	1.736	1.690	1.626	1.528
   3	2.673	2.487	2.402	2.283	2.106
   4	3.465	3.170	3.037	2.855	2.589
   5	4.212	3.791	3.605	3.353	2.991
   6	4.917	4.355	4.111	3.785	3.326
   7	5.582	4.868	4.564	4.160	3.605
   8	6.210	5.335	4.968	4.487	3.837
   9	6.802	5.759	5.328	4.772	4.031
   10	7.360	6.145	5.650	5.019	4.192

   Required:

   1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign 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	$fill in the blank 1	$fill in the blank 2
   Less amount to be invested	fill in the blank 3	fill in the blank 4
   Net present value	$fill in the blank 5	$fill in the blank 6

   1b. Compute a present value index for each project. If required, round your answers to two decimal places.

   	Present Value Index
   Wind Turbines	fill in the blank 7
   Biofuel Equipment	fill in the blank 8

   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 $1 in 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	fill in the blank 9		fill in the blank 10
   Internal rate of return	fill in the blank 11	%	fill in the blank 12	%

   3. The net present value, present value index, and internal rate of return all indicate that the

   biofuel equipmentwind turbines

   is/are a better financial opportunity compared to the

   biofuel equipmentwind turbines

   , although both investments meet the minimum return criterion of 10%.