# 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?

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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