Required: 1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar. Wind Turbines Biofuel Equipment Present value of annual net cash flows Amount to be invested Net present value 1b. Compute a present value index for each project. If required, round your answers to two decimal places. Present Value Index Wind Turbines Biofuel Equipment $ 2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to t nearest whole percent. Present value factor for an annuity of $1 Internal rate of return Wind Turbines % Biofuel Equipment % ✓is/are a better financial opportu 3. The net present value, present value index, and internal rate of return all indicate that the wind turbines compared to the biofuel equipment ✓, although both investments meet the minimum return criterion of 10%.

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
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Question
10
Required:
7.360
Amount to be invested
Present value of annual net cash flows
Net present value
6.145
Wind Turbines
5.650
1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the
minus sign to indicate a negative net present value. If required, round to the nearest whole dollar.
Wind Turbines
Biofuel Equipment
Biofuel Equipment
4.772
Internal rate of return
5.019
Present value factor for an annuity of $1
4.051
4.192
1b. Compute a present value index for each project. If required, round your answers to two decimal places.
$
$
2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of ar
annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the
nearest whole percent.
Present Value Index
Wind Turbines
%
Biofuel Equipment
%
3. The net present value, present value index, and internal rate of return all indicate that the wind turbines
compared to the biofuel equipment
although both investments meet the minimum return criterion of 10%.
is/are a better financial opportun
Transcribed Image Text:10 Required: 7.360 Amount to be invested Present value of annual net cash flows Net present value 6.145 Wind Turbines 5.650 1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar. Wind Turbines Biofuel Equipment Biofuel Equipment 4.772 Internal rate of return 5.019 Present value factor for an annuity of $1 4.051 4.192 1b. Compute a present value index for each project. If required, round your answers to two decimal places. $ $ 2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of ar annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent. Present Value Index Wind Turbines % Biofuel Equipment % 3. The net present value, present value index, and internal rate of return all indicate that the wind turbines compared to the biofuel equipment although both investments meet the minimum return criterion of 10%. is/are a better financial opportun
The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as
follows:
Year
1
2
3
The wind turbines require an investment of $799,400, while the biofuel equipment requires an investment of $1,791,830. No residual value is expected from
either project.
4
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
5
6
1
7
2
3
4
8
9
10
Required:
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
Wind
Turbines
6.802
$280,000
280,000
280,000
280,000
7.360
0.909
1.736
2.487
3.170
3.791
4.355
4.868
Biofuel
Equipment
$590,000
590,000
590,000
590,000
5.335
5.759
6.145
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
0.870
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the
minus sign to indicate a negative net present value. If required, round to the nearest whole dollar.
Transcribed Image Text:The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year 1 2 3 The wind turbines require an investment of $799,400, while the biofuel equipment requires an investment of $1,791,830. No residual value is expected from either project. 4 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 5 6 1 7 2 3 4 8 9 10 Required: 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 Wind Turbines 6.802 $280,000 280,000 280,000 280,000 7.360 0.909 1.736 2.487 3.170 3.791 4.355 4.868 Biofuel Equipment $590,000 590,000 590,000 590,000 5.335 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar.
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