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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

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 $280,000 $300,000
2  280,000  300,000
3  280,000  300,000
4  280,000  300,000

The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project.

Present Value of an Annuity of $1 at Compound Interest
Year6%10%12%15%20%
10.9430.9090.8930.8700.833
21.8331.7361.6901.6261.528
32.6732.4872.4022.2832.106
43.4653.1703.0372.8552.589
54.2123.7913.6053.3532.991
64.9174.3554.1113.7853.326
75.5824.8684.5644.1603.605
86.2105.3354.9684.4873.837
96.8025.7595.3284.7724.031
107.3606.1455.6505.0194.192

Required:

1a.  Compute the net present value for each project. Use a rate of 6% and the present value of an annuity of $1 in the table above. If required, round to the nearest dollar.

 Wind TurbinesBio Fuel 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 
Bio Fuel 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 $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 percent.

 Wind TurbinesBio Fuel Equipment
Present value factor for an annuity of $1  
Internal rate of return      %      %

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