Question

The management of Southern Power and Light Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:


The wind turbines require an investment of $ 971,840, while the biofuel equipment requires an investment of $ 1,109,500. No residual value is expected from either project.

Instructions
1. Compute the following for each project:
a. The net present value. Use a rate of 6% and the present value of an annuity of $ 1 table appearing in this chapter (Exhibit 2).
b. A present value index. Round to two decimal places.
2. Determine the internal rate of return for each project by
(a) Computing a present value factor for an annuity of $ 1
(b) Using the present value of an annuity of $ 1 table appearing in this chapter (Exhibit).
3. What advantage does the internal rate of return method have over the net present value method in comparingprojects?


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  • CreatedJune 27, 2014
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