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...


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



      %



      %


Jun 10, 2022
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