Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:

image text in transcribed

The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Wind Year Turbines Biofuel Equipment 1 $310,000 $620,000 310,000 620,000 3 310,000 620,000 4 310,000 620,000 The wind turbines require an investment of $802,590, while the biofuel equipment requires an investment of $1,770,100. 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 10 6.802 7.360 5.759 5.328 4.772 4.031 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. Present value of annual net cash flows Amount to be invested Net present value Wind Turbines Biofuel Equipment 31,700 X 982,700 X 885,050 X 97,650 X 1b. Compute a present value index for each project. If required, round your answers to two decimal places. Wind Turbines Biofuel Equipment Present Value Index 982,700 X 1,965,40 X 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 2.855 X 3.037 X Internal rate of return 15 X % 12 X % 3. The net present value, present value index, and internal rate of return all indicate that the biofuel equipment X is/are a better financial opportunity compared to the wind turbines X, although both investments meet the minimum return criterion of 10%.

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_2

Step: 3

blur-text-image_3

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

Financial Institutions Management A Risk Management Approach

Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders

8th edition

978-0078034800, 78034809, 978-0071051590

More Books

Students also viewed these Finance questions

Question

Calculate the number of neutrons of 239Pu.

Answered: 1 week ago