Net Present Value A project has estimated annual net cash flows of $15,000 for eight years and is estimated to cost $45,000. Assume a minimum acceptable rate of return of 15%. Use the Present Value of an Annuity of $1 at Compound Interest table below. Present Value of an Annuity of $1 at Compound Interest 10% 12% 15% 20% 6% 0.943 8.900 0.993 0.870 0.833 1.833 1.736 1.000 1.626 1.528 2.673 2.402 2.283 2.106 3.465 3.037 2.855 2.509 4.212 3.791 3.605 3.353 2.991 4.917 4.111 4.355 3.785 3.326 5.582 4.968 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.750 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Detunnine (a) the net present value of the project and (b) the present value index. If required, use the minus sign to indicate a negative net present value Net present value of the project (round to the nearest dollar) 5,295 X Present value index (rounded to two decimal places) 1.12 X Year 1 2 3 4 0 7 B 9 2.487 3.170

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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.