Part Five APPLY THE CONCEPTS: Net present value and Present value index Underwood Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. Underwood's cost of capital is 8%. mject A Project B This project requires an initial investment of This project requires an initial investment of $167,500. 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 $113,000 and expenses associated with the project will be 535,000. 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: 0 Use a minus sign to indicate a negative NPV. 0 If an amount is zero, enter "0". 9 Enter the present value index to 2 decimals. Present Value of $1 at Compound Interest Year 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 2 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 3 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 4 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 5 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 6 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 7 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 8 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 9 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 10 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247Present Value of an Annuity of $1 at Compound Interest Year 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 2 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 3 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 4 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 5 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 6 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 7 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 8 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 9 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 10 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019Project A Project B Total present value of net cash flow 545,965 X Amount to be invested 167,500 135,000 Net present value 378,465 Present value index: Project A 3.26 Project B