c) Exercise 3: What is the Net Present Value for Project 1? See circle on printed exercise. If NPV is negative, place a minus sign in front of your answer.

d) Exercise 3: What is the Net Present Value for Project 2? See circle on printed exercise. If NPV is negative, place a minus sign in front of your answer.

Net Present Value (NPV): Uses time value of money techniques to evaluate the viability of a project. EXERCISE 3: Everclear Inc. is deciding how best to use its limited capital and must choose between two different projects with different initial investments and annual cash flows. Year Initial Investment Project 1 $250,000 Cash Inflows $80,000 80,000 80.000 80,000 $320,000 Project 2 $275,000 Cash Inflows $125,000 110,000 60.000 55,000 $350,000 Total 2 Pag Assuming a Required Rate of Return of 8%, calculate the NPV for Project 1. Project 1 is considered to be an "Annuity" as the project is expected to return an equal series of cash flows over the project life. Begin by calculating the present value of the estimated annual cash flows. Use the PV Annuity table on the last page. Equal Annual Cash Flow Multiply by: PV Factor PV of Annual Cash Flow (round to nearest whole dollar) Next, compare the present value calculated above to the initial investment to determine NPV: 15 PV of Annual Cash Flow (above) Less: Initial Investment Net Present Value (NPV) Note: If the NPV for Project 1 is positive, it means that it will yield more than the required rate of 8%. This makes the project viable, but it doesn't necessarily mean it represents the best use of company funds. Next, calculate the NPV for Project 2 assuming the same Required Rate of Return of 8%. Since this project ha unequal expected cash flows, you must separately determine the PV amount for each year (You must use the PV of $1 table and the 8% column). Round the PV column answers to the nearest whole dollar. Year T PV XPV factor X = 2 3 Cash Inflows $125,000 110,000 60,000 55,000 X X Total PV of Cash Flows Less: Initial Investment NPV of Project 2 Conclusion: Which project should Everclear Inc. choose? Calculate the Present Value Index to make a decision. The Present Value Index calculates the number of dollars returned for every dollar invested. PV of Cash Flows Divide by: Initial Investment Present Value Index Project 1 S / 5 Project 2 TS / 5 Which project should Everclear Inc. choose