Part Three Present Value Index When funds for capital investments are limited, projects can be...
50.1K
Verified Solution
Link Copied!
Question
Accounting
Part Three Present Value Index When funds for capital investments are limited, projects can be ranked using a present value index. A project with a negative net present value will have a present value index below 1.0. Also, lt is important to note that a project with the largest net present value may, in fact, return a lower present value per dollar invested. Let's look at an example of how to determine the present value index. The company has a project wlth a 5-year life, an initial investment of $220,000, and is expected to yield annual cash flows of $57,500. Whathat is the present value index of the project it the requlreo rate of return is set at 6%? Total present value of net cash ows Present value lndex Inltial investment Calculation Steps Note: Round total present value of net cash flows and initial investment tn nearest dollar. Round present value index to two decimal places. l:l Present value index : D =
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Link Copied!
