NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows: N P V = P r e s e n t v a l u e o f c a s h i n f l o w s – P r e s e n t v a l u e o f c a s h o u t f l o w s Profitability Index: Profitability Index is similar to the NPV method to evaluate a project. It calculates the ratio between the present value cash inflow and present value of cash outflow . A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows: P r o f i t a b i l i t y i n d e x = P r e s e n t v a l u e c a s h i n f l o w P r e s e n t v a l u e o f c a s h o u t f l o w Requirement-1: The NPV for each Project

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Chapter 26, Problem E26.25E

To determine

Concept Introduction:

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

Profitability Index: Profitability Index is similar to the NPV method to evaluate a project. It calculates the ratio between the present value cash inflow and present value of cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

Requirement-1:

The NPV for each Project

To determine

Requirement -2:

The Maximum acceptable price for each Project

To determine

Requirement -3:

The Profitability Index for each Project

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