1. Two anti-pollution project proposals are being considered by Energon Industries. The expected cash flows are as follows: End of Year Project 1 Project 2 0 - P3.5M - P4.5M 1 - 0.25M - 0.125M 2 - 0.375M - 0.25M 3 - 0.5M - 0.375M 4 - 0.625M - 0.5M 5 - 1.55M - 0.625M Using the incremental investment approach and a 12 % MARR, determine the better alternative. (Ans. i2-1=9.17% ; select Project 1)

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.