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Net Present Value Method, Present Value Index, and Analysis Donahue Industries Inc. wishes to evaluate...

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Accounting

Net Present Value Method, Present Value Index, and Analysis

Donahue Industries Inc. wishes to evaluate three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows:

Product Line Expansion Distribution Facilities Computer Network
Amount to be invested $700,434 $438,165 $256,697
Annual net cash flows:
Year 1 359,000 244,000 154,000
Year 2 334,000 220,000 106,000
Year 3 305,000 195,000 77,000

Assuming that the desired rate of return is 20%, prepare a net present value analysis for each project. Use the present value of $1 table presented above in your computations. If the net present value is negative, enter a negative amount.

Product Line Expansion Distribution Facilities Computer Network
Present value of net cash flow total $ $ $
Amount to be invested
Net present value $ $ $

2. Determine a present value index for each proposal. Round your answers to two decimal places.

Present Value Index (Rounded)
Product Line Expansion
Distribution Facilities
Computer Network

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