Concept explainers
1. a.
Net present value method is the method which is used to compare the initial
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:
Internal rate of return method is one of the capital investment method which determines the rate of return wherein the net present value of all the cash flows (both positive and negative) from an investment is zero. This method also called as the time-adjusted rate of return method, and it used to evaluate the different proposal’s expected rate of return.
To calculate: The net present value of the investment of Power Incorporation.
b.
To determine: The present value index for each proposal.
2.
The internal rate of return for the given project
3.
To compare: The both projects, and discuss the advantages of internal rate of return over the net present value.
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Chapter 26 Solutions
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