# Present value index Dip N’ Dunk Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows: Fort Collins Boulder Total present value of net cash flow $607,600$624,000 Less amount to be invested 620,000 600.000 Net present value $(12,400)$ 24,000 a. Determine the present value index for each proposal. b. Which location does your analysis support? Explain

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 26, Problem 26.12EX
Textbook Problem

## Present value index Dip N’ Dunk Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows:   Fort Collins Boulder Total present value of net cash flow $607,600$624,000 Less amount to be invested 620,000 600.000 Net present value $(12,400)$ 24,000  a.    Determine the present value index for each proposal.b.    Which location does your analysis support? Explain

Expert Solution

a.

To determine

Present value index:

Present value index is a technique, which is used to rank the proposals of the business.  It is used by the management when the business has more investment proposals, and limited fund.

The present value index is computed as follows:

Present value index =Total present value of net cash flowAmount to be invested

To determine:  The present value index for each proposal.

### Explanation of Solution

Calculate the present value index for Fort Collins:

Present value index for Fort Collins = Total presest value of cash flowAmount to be invested=$607,600$620,000=0.98

Hence, the present value index for Fort Collins is 0

Expert Solution

b.

To determine

To analysis: The investment location which is favor to investment.

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