Present Value Index Montana Grill has computed the net present value for capital expenditures for the Billings and Great Falls locations using the net present value method. Relevant data related to the computation are as follows: Billings Great Falls Total present value of net cash flow $256,680 $354,240 Amount to be invested 276,000 328,000 a. Determine the present value index for each proposal. Round to two decimal places. Present Value Index Billings Location Great Falls Location b. If Montana Grill can fund only one location, which location should be funded?

Present Value Index Montana Grill has computed the net present value for capital expenditures for the Billings and Great Falls locations using the net present value method. Relevant data related to the computation are as follows: Billings Great Falls Total present value of net cash flow $256,680 $354,240 Amount to be invested 276,000 328,000 a. Determine the present value index for each proposal. Round to two decimal places. Present Value Index Billings Location Great Falls Location b. If Montana Grill can fund only one location, which location should be funded?

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

Problem 1PS

See similar textbooks

Related questions

Q: Tesla Company uses a 12% hurdle rate for all capital expenditures. It screens investments using…

A: Net Present Value=(Present Value of Cash Inflows-Present Value of Cash Outflows) Profitability…

Q: Cullumber Corp. management is evaluating two independent projects. The costs and expected cash flows…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Q: Based on the project data presented in the table, calculate for each of the projects the revenue…

A: To calculate the revenue recognized using different methods for each project, we'll first break down…

Q: Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow…

A: YearCash flow (A)Cash flow…

Q: Information on four investment proposals is given below: A Investment required Net present value. $…

A: Profitability index = Present value of cash inflows / Initial investmentHigher the profitability…

Q: How do I calculate and record the related after tax cash flow effect(s)?

A: THE FOLLOWING IS THE ANSWER

Q: a net present value analysis fam

A: Net Present Value is the difference of Present Value of Cash Inflow and outflow. Excess of Present…

Q: Given the following attributes of an investment project with a five-year life: investment outlay,…

A: a) Net present value: Net present value is the variation among current value of cash inflows and…

Q: Consider how McKnight Valley Brook Park Lodge could use capital budgeting to decide whether the…

A: The net present value is the difference between the present value of the future cash flows and the…

Q: Assume the following information for a capital budgeting proposal with a five-year time horizon:…

A: Net Present Value (NPV) is used to evaluate the profitability of an investment or project by…

Q: Internal Rate of Return Method The internal rate of return method is used by Royston Construction…

A: Internal Rate of Return : It is used to Approve or Reject the project or to select the best amongest…

Q: (90,000) 126,000 $36,000 5 years $ (100,000) 138,000 $ 38,000 7 years $ (70,000) 105,000 $ 35,000 6…

A: Profitability index is the Present value of cashinflows divided the intital investment.

Q: Blue Spruce Inc. is comparing several alternative capital budgeting projects as shown below: Initial…

A: The Profitability index is calculated by dividing the present value of future expected cash flows by…

Q: Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment…

A: Formulae for Average rate of return is = Total average net profit/initial investment =Total average…

Q: Management of Blossom, Inc., is considering investing in three independent projects. The costs and…

A: The internal rate of return (IRR) is a financial metric used to evaluate the profitability of an…

Q: Average rate of return method, net present value method, and analysisThe capital investment…

A: Capital budgeting is a financial process to evaluate an investment that requires huge capital funds…

Q: Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash…

A: The Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of an…

Q: Annual after-tax cash inflows 34,000 After-tax cash inflows at the end of years 3, 6, 9, and 12…

A: Present value method is used to evaluate the different level of investment projects. With the help…

Q: Management of Oriole Automotive, a manufacturer of auto parts, is considering investing in two…

A: IRR of project is the break even rate at which present value of cash flow is equal to initial…

Q: Information on four investment proposals is given below. Investment required Present value of cash…

A: Profitability index is computed as = PV of cash inflows / Initial investmentProject is rank based on…

Q: You are given the following financial information related to a capital investment project. What is…

A: Net cash flows from above information can be calculated by using below equation.Net cash flow…

Q: Findell Corporation is considering two projects, A and B, and it has gathered the following…

A: The present value index or profitability index is calculated as ratio of present value of cash…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

ebook
Present Value Index
Montana Grill has computed the net present value for capital expenditures for the Billings and Great Falls locations using the net present value method. Relevant data related to the
computation are as follows:
Billings
Great Falls
Total present value of net cash flow
$256,680
$354,240
Amount to be invested
276,000
328,000
a. Determine the present value index for each proposal. Round to two decimal places.
Present Value Index
Billings Location
Great Falls Location
b. If Montana Grill can fund only one location, which location should be funded?
Great Falls
Feedback
Check My Work
a. Divide the total present value of the net cash flow by the amount to be invested.
b. Know that a project will have a present value index greater than 1 when the net present value is positive.
Previous
Next
Check My Work
Email Instructor
Save and Exit
Submit Assignment for Grading
Sign out
VO 12:18

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Information on four investment proposals is given below. Investment required Present value of cash inflows Net present value Life of the project Required: 1 Compute the profitability index for each investment proposal. Note: Round your answers to 2 decimal places. 2. Rank the proposals in terms of preference Investment Profitability Proposal Index A B C D S (150,000) 211,800 $61,500 Rank Preference 5 years Investment Proposal $(80,000) 110,400 $ 30,400 7 years $ (160,000) 241,600 $ 81,600 6 years D $ (910,000) 1.214,500 $ 304,500 6 years
First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $686,053 $516,654 $295,458 Annual net cash flows: Year 1 411,000 288,000 177,000 Year 2 382,000 259,000 122,000 Year 3 349,000 230,000 89,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each project. Use the…
The Fritz Co. is considering a new project and asked the chief accountant to review potential changes to the net working capital accounts should the project be adopted. The accountant’s report is as follows: Current Projected Inventory $ 99,218 $ 75,000 Accounts receivable $ 89,430 $110,000 Accounts payable $ 58,640 $ 50,000 What amount should be included in the initial cash flow of the project for net working capital?
Consider the following project balances for a typical investment project with athe service life of five years: (a) Fill in the blanks by constructing the original cash flows of the project anddetermining the terminal balance.(b) Determine the interest rate used in the project-balance calculation, andcompute the present worth of this project at the computed interest rate.
Military Jargon Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: ProjectName Bravo Tango Uniform Victor Investment $880,008 Investment $2,770,865 Investment $1,566,680 Investment $918,346 Year Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows 1 $96,000 $240,000 $294,500 $950,000 $176,000 $400,000 $108,000 $380,000 2 96,500 240,000 294,775 950,000 176,000 400,000 108,000 380,000 3 97,000 240,000 295,050 950,000 176,000 400,000 108,000 380,000 4 97,500 240,000 295,325 950,000 176,000 400,000 108,000 380,000 5 98,000 240,000 295,600 950,000 176,000 400,000 108,000 380,000 Total $485,000 $1,200,000 $1,475,250 $4,750,000 $880,000 $2,000,000 $540,000 $1,900,000 Present Value of $1 at…
Tasty Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows: Des Moines Cedar Rapids Total present value of net cash flow $194,880 $254,100 Amount to be invested (203,000) (242,000) Net present value $(8,120) $12,100 a. Determine the present value index for each proposal. Round your answers for the present value index to two decimal places. Des Moines Cedar Rapids Total present value of net cash flow $fill in the blank 1 $fill in the blank 2 Amount to be invested $fill in the blank 3 $fill in the blank 4 Present value index fill in the blank 5 fill in the blank 6 b. Which location does your analysis support? (If both present value indexes are the same, either location will grade as correct.) , because the net present value index is 1.

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS