Part Five

APPLY THE CONCEPTS: Net present value and Present value index

Ewing Industries is looking to invest in Project A or Project B. The data surrounding each project is provided below. Ewing's cost of capital is 10%.
Project A	Project B
This project requires an initial investment of $167,500. The project will have a life of 3 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 $135,000. The project will have a life of 5 years. Annual revenues associated with the project will be $111,000 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 dccf37fe5f81016_1		$fill in the blank dccf37fe5f81016_2
Amount to be invested	fill in the blank dccf37fe5f81016_3		fill in the blank dccf37fe5f81016_4
Net present value	$fill in the blank dccf37fe5f81016_5		$fill in the blank dccf37fe5f81016_6
Present value index:
Project A	fill in the blank dccf37fe5f81016_7
Project B			fill in the blank dccf37fe5f81016_8

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

Both are favorableProject AProject BCan't determine

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

Both are favorableProject BProject ACan't determine

\begin{tabular}{|c|cccccccccccc} \multicolumn{10}{c|}{} & \multicolumn{8}{c}{ Present Value of an Annuity of $1 at Compound Interest } \\ Year & 5% & 6% & 7% & 8% & 9% & 10% & 11% & 12% & 13% & 14% & 15% \\ \hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 & 0.901 & 0.893 & 0.885 & 0.877 & 0.870 \\ 2 & 1.859 & 1.833 & 1.808 & 1.783 & 1.759 & 1.736 & 1.713 & 1.690 & 1.668 & 1.647 & 1.626 \\ 3 & 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 & 2.444 & 2.402 & 2.361 & 2.322 & 2.283 \\ 4 & 3.546 & 3.465 & 3.387 & 3.312 & 3.240 & 3.170 & 3.102 & 3.037 & 2.974 & 2.914 & 2.855 \\ 5 & 4.329 & 4.212 & 4.100 & 3.993 & 3.890 & 3.791 & 3.696 & 3.605 & 3.517 & 3.433 & 3.352 \\ 6 & 5.076 & 4.917 & 4.767 & 4.623 & 4.486 & 4.355 & 4.231 & 4.111 & 3.998 & 3.889 & 3.784 \\ 7 & 5.786 & 5.582 & 5.389 & 5.206 & 5.033 & 4.868 & 4.712 & 4.564 & 4.423 & 4.288 & 4.160 \\ 8 & 6.463 & 6.210 & 5.971 & 5.747 & 5.535 & 5.335 & 5.146 & 4.968 & 4.799 & 4.639 & 4.487 \\ 9 & 7.108 & 6.802 & 6.515 & 6.247 & 5.995 & 5.759 & 5.537 & 5.328 & 5.132 & 4.946 & 4.772 \\ 10 & 7.722 & 7.360 & 7.024 & 6.710 & 6.418 & 6.145 & 5.889 & 5.650 & 5.426 & 5.216 & 5.019 \\ \hline \end{tabular} \begin{tabular}{c|ccccccccccc} \multicolumn{10}{c}{ Present Value of $1 at Compound Interest } \\ Year & 5% & 6% & 7% & 8% & 9% & 10% & 11% & 12% & 13% & 14% & 15% \\ \hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 & 0.901 & 0.893 & 0.885 & 0.877 & 0.870 \\ 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 & 0.812 & 0.797 & 0.783 & 0.769 & 0.756 \\ 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 & 0.731 & 0.712 & 0.693 & 0.675 & 0.658 \\ 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 & 0.659 & 0.636 & 0.613 & 0.592 & 0.572 \\ 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 & 0.593 & 0.567 & 0.543 & 0.519 & 0.497 \\ 6 & 0.746 & 0.705 & 0.666 & 0.630 & 0.596 & 0.564 & 0.535 & 0.507 & 0.480 & 0.456 & 0.432 \\ 7 & 0.711 & 0.665 & 0.623 & 0.583 & 0.547 & 0.513 & 0.482 & 0.452 & 0.425 & 0.400 & 0.376 \\ 8 & 0.677 & 0.627 & 0.582 & 0.540 & 0.502 & 0.467 & 0.434 & 0.404 & 0.376 & 0.351 & 0.327 \\ 9 & 0.645 & 0.592 & 0.544 & 0.500 & 0.460 & 0.424 & 0.391 & 0.361 & 0.333 & 0.308 & 0.284 \\ 10 & 0.614 & 0.558 & 0.508 & 0.463 & 0.422 & 0.386 & 0.352 & 0.322 & 0.295 & 0.270 & 0.247 \end{tabular}