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 Amount to be invested Net present value Present value index: Project A Project B Based upon net present value, which project has the more favorable profit prospects? Project A
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 Amount to be invested Net present value Present value index: Project A Project B Based upon net present value, which project has the more favorable profit prospects? Project A
Chapter6: Exponential And Logarithmic Functions
Section6.1: Exponential Functions
Problem 3SE: The Oxford Dictionary defines the word nominal asa value that is “stated or expressed but...
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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
$
Amount to be invested
Net present value
Present value index:
Project A
Project B
Based upon net present value, which project has the more favorable profit prospects? Project A
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