Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company 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 Wind Turbines Biofuel Equipment 1 $280,000 $300,000 2 280,000 300,000 3 280,000 300,000 4 280,000 300,000 The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Compute the net present value for each project. Use a rate of 6% and the present value of an annuity of $1 in the table above. If required, round to the nearest dollar. Wind Turbines Biofuel Equipment Present value of annual net cash flows $ $ Less amount to be invested Net present value $ $ Compute a present value index for each project. If required, round your answers to two decimal places. Present Value Index Wind Turbines Biofuel Equipment 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 an 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. Wind Turbines Biofuel Equipment Present value factor for an annuity of $1 Internal rate of return % %
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 |
|
Wind Turbines |
|
Biofuel Equipment |
|
1 |
|
$280,000 |
|
$300,000 |
|
2 |
280,000 |
300,000 |
||
|
3 |
280,000 |
300,000 |
||
|
4 |
280,000 |
300,000 |
The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project.
|
Present Value of an |
|||||
|
Year |
6% |
10% |
12% |
15% |
20% |
|
1 |
0.943 |
0.909 |
0.893 |
0.870 |
0.833 |
|
2 |
1.833 |
1.736 |
1.690 |
1.626 |
1.528 |
|
3 |
2.673 |
2.487 |
2.402 |
2.283 |
2.106 |
|
4 |
3.465 |
3.170 |
3.037 |
2.855 |
2.589 |
|
5 |
4.212 |
3.791 |
3.605 |
3.353 |
2.991 |
|
6 |
4.917 |
4.355 |
4.111 |
3.785 |
3.326 |
|
7 |
5.582 |
4.868 |
4.564 |
4.160 |
3.605 |
|
8 |
6.210 |
5.335 |
4.968 |
4.487 |
3.837 |
|
9 |
6.802 |
5.759 |
5.328 |
4.772 |
4.031 |
|
10 |
7.360 |
6.145 |
5.650 |
5.019 |
4.192 |
Compute the net present value for each project. Use a rate of 6% and the present value of an annuity of $1 in the table above. If required, round to the nearest dollar.
|
|
Wind Turbines |
Biofuel Equipment |
|
Present value of annual net cash flows |
$ |
$ |
|
Less amount to be invested |
||
|
Net present value |
$ |
$ |
Compute a present value index for each project. If required, round your answers to two decimal places.
|
|
Present Value Index |
|
Wind Turbines |
|
|
Biofuel Equipment |
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 an 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.
|
|
Wind Turbines |
Biofuel Equipment |
|
Present value factor for an annuity of $1 |
||
|
Internal rate of return |
% |
% |
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