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Question 25.3: A project has estimated annual net cash flows of $50,000 for...

A project has estimated annual net cash flows of $50,000 for seven years and is estimated to cost $240,000. Assume a minimum acceptable rate of return of 12%. Using Exhibit 2 on page  1168,

EXHIBIT 2 : Partial Present Value of an Annuity Table
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

determine (a) the net present value of the project and (b) the present value index, rounded to two decimal places.

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a.   ($11,800)          [($50,000 × 4.564) – $240,000]
b.   0.95                   ($228,200/$240,000)

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