The management of Pacific Utilities Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:

The generating unit requires an investment of $1,172,900, while the distribution net-work expansion requires an investment of $850,360. No residual value is expected from either project.
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 and (b) using the present value of an annuity of $1 table appearing in this chapter (Exhibit 2).
3.  What advantage does the internal rate of return method have over the net present value method in comparing projects?

Exhibit 2:

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Distribution Network Expansion Generating Unit Year $370,000 370,000 370,000 $280,000 280,000 280,000 2 4 370,000 280,000 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 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 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 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