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APPLY THE CONCEPTS: Net present value and Present value index Sutherland Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. Sutherland's cost of capital is 10%. Project A Project B This project requires an initial investment of This project requires an initial investment of $172,500. The project will have a life of 3 $137,500. The project will have a life of 5 years. Annual revenues associated with the years. Annual revenues associated with the project will be $130,000 and expenses associated with the project will be $35,000. project will be $109,000 and expenses 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: • Use a minus sign to indicate a negative NPV. • If an amount is zero, enter "0". • Enter the present value index to 2 decimals. Project A Project B Total present value of net cash flow 236,256 x 185,749 x Amount to be invested 172,500 137,500 V Net present value 50,507 x 48,249 x Present value index: Project A 1.37 Project B 1.35 V

APPLY THE CONCEPTS: Net present value and Present value index Sutherland Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. Sutherland's cost of capital is 10%. Project A Project B This project requires an initial investment of This project requires an initial investment of $172,500. The project will have a life of 3 $137,500. The project will have a life of 5 years. Annual revenues associated with the years. Annual revenues associated with the project will be $130,000 and expenses associated with the project will be $35,000. project will be $109,000 and expenses 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: • Use a minus sign to indicate a negative NPV. • If an amount is zero, enter "0". • Enter the present value index to 2 decimals. Project A Project B Total present value of net cash flow 236,256 x 185,749 x Amount to be invested 172,500 137,500 V Net present value 50,507 x 48,249 x Present value index: Project A 1.37 Project B 1.35 V

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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APPLY THE CONCEPTS: Net present value and Present value index Sutherland Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. Sutherland's cost of capital is 10%. Project A Project B This project requires an initial investment of This project requires an initial investment of $172,500. The project will have a life of 3 $137,500. The project will have a life of 5 years. Annual revenues associated with the years. Annual revenues associated with the project will be $130,000 and expenses project will be $109,000 and expenses associated with the project will be $35,000. 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: • Use a minus sign to indicate a negative NPV. • If an amount is zero, enter "0". • Enter the present value index to 2 decimals. Project A Project B Total present value of net cash flow 236,256 x $ 185,749 x Amount to be invested 172,500 137,500 V Net present value 50,507 X 48,249 x Present value index: Project A 1.37 Project B 1.35
Transcribed Image Text:APPLY THE CONCEPTS: Net present value and Present value index Sutherland Engineering is looking to invest in Project A or Project B. The data surrounding each project is provided below. Sutherland's cost of capital is 10%. Project A Project B This project requires an initial investment of This project requires an initial investment of $172,500. The project will have a life of 3 $137,500. The project will have a life of 5 years. Annual revenues associated with the years. Annual revenues associated with the project will be $130,000 and expenses project will be $109,000 and expenses associated with the project will be $35,000. 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: • Use a minus sign to indicate a negative NPV. • If an amount is zero, enter "0". • Enter the present value index to 2 decimals. Project A Project B Total present value of net cash flow 236,256 x $ 185,749 x Amount to be invested 172,500 137,500 V Net present value 50,507 X 48,249 x Present value index: Project A 1.37 Project B 1.35
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