Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $280,000 $300,000 2 280,000 300,000 3 280,000 300,000 4 280,000 300,000 The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 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 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 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 Compute the net present value for each project. Use a rate of 6% and the present value of an annuity of $1 in the table above. If required, round to the nearest dollar. Wind Turbines Biofuel Equipment Present value of annual net cash flows $ $ Less amount to be invested Net present value $ $
The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:
|
Year |
|
Wind Turbines |
|
Biofuel Equipment |
|
1 |
$280,000 |
|
$300,000 |
|
|
2 |
280,000 |
300,000 |
||
|
3 |
280,000 |
300,000 |
||
|
4 |
280,000 |
300,000 |
The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project.
|
Present Value of an Annuity of $1 at Compound Interest |
|||||
|
Year |
6% |
10% |
12% |
15% |
20% |
|
1 |
0.943 |
0.909 |
0.893 |
0.870 |
0.833 |
|
2 |
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 |
|
5 |
4.212 |
3.791 |
3.605 |
3.353 |
2.991 |
|
6 |
4.917 |
4.355 |
4.111 |
3.785 |
3.326 |
|
7 |
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 |
Compute the net present value for each project. Use a rate of 6% and the present value of an annuity of $1 in the table above. If required, round to the nearest dollar.
|
|
Wind Turbines |
Biofuel Equipment |
|
Present value of annual net cash flows |
$ |
$ |
|
Less amount to be invested |
||
|
Net present value |
$ |
$ |
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