The management of Northern Utilities Inc. is considering two capital investment projects. The estimated net cash flows

Question:

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

The generating unit requires an investment of $1,822,200, while the distribution network expansion requires an investment of $456,800. No residual value is expected from either project.

Instructions
1. Compute the following for each project:
a. The net present value. Use a rate of 10% and the present value of an annuity of $1 table appearing in this chapter.
b. A present value index. Round to 2 decimal places.
2. Determine the internal rate of return for each project by
(a) Computing a present value factor for an annuity of $1
(b) Using the present value of an annuity of $1 table appearing in this chapter.
3. What advantage does the internal rate of return method have over the net present value method in comparingprojects?

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