Part Five

APPLY THE CONCEPTS: Net present value and Present value index

Ewing Manufacturing is looking to invest in Project A or Project B. The data surrounding each project is provided below. Ewing's cost of capital is 8%.
Project A	Project B
This project requires an initial investment of $172,500. The project will have a life of 8 years. Annual revenues associated with the project will be $130,000 and expenses associated with the project will be $35,000.	This project requires an initial investment of $132,500. The project will have a life of 7 years. Annual revenues associated with the project will be $115,000 and expenses associated with the project will be $60,000.

Calculate the net present value and the present value index for each project using the present value tables provided below.

Present Value of $1 (a single sum) at Compound Interest.

Present Value of an Annuity of $1 at Compound Interest.

Note:
	Use a minus sign to indicate a negative NPV.
	If an amount is zero, enter "0".
	Enter the present value index to 2 decimals.

	Project A	Project B
Total present value of net cash flow	$fill in the blank ad01f6f23fb5fb1_1		$fill in the blank ad01f6f23fb5fb1_2
Amount to be invested	172500		132500
Net present value	$fill in the blank ad01f6f23fb5fb1_5		$fill in the blank ad01f6f23fb5fb1_6
Present value index:
Project A	fill in the blank ad01f6f23fb5fb1_7
Project B			2.16

Based upon net present value, which project has the more favorable profit prospects?

Project A

Based upon the present value index, which project is ranked higher?

Project A