27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Net present value

A project has estimated annual net cash flows of $8,000 for five years and is estimated to cost $28,000. Assume a minimum acceptable rate of return of 12%. Using Exhibit 5, determine (1) the net present value of the project and (2) the present value index, rounded to two decimal places.


To determine

Net present value method:

Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To calculate: The net present value of the investment.


The net present value of the project with 12% rate of return is $840.

Working Note:

Calculation of NPV of the Project:



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 calculate: The present value index of the investment.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Use a production possibilities frontier to describe the idea of efficiency.

Principles of Macroeconomics (MindTap Course List)

Whats the difference between a call for sinking fund purposes and a refunding call?

Fundamentals of Financial Management (MindTap Course List)

Describe the different ways in which capital can be transferred from suppliers of capital to those who are dema...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Explain the difference between a blank endorsement and a restrictive endorsement.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

Describe backup and recovery.

Pkg Acc Infor Systems MS VISIO CD

Why are demand curves downward sloping?

Economics (MindTap Course List)