This Website Has Been Moved to a New Link


Loading

PR26-4B Mid South

Price: $3.50


The management of Mid South Utilities Inc. is considering two capital investment
projects. The estimated net cash flows from each project are as follows:



Year Generating Unite Dis. Network Expansion
1  580,000  210,000
2  580,000  210,000
3  580,000  210,000
4  580,000  210,000

The generating unit requires an investment of $1,761,460, while the distribution
network expansion requires an investment of $665,700. No residual value is expected
from either project.

Instructions
1. Compute the following for each project:
a. The net present value. Use a rate of 6% and the present value of an annuity of $1
table appearing in this chapter.
b. A present value index. Round to two decimal places.

2. Determine the internal rate of return for each project by (a) computing a present
value factor for an annuity of $1 and (b) using the present value of an annuity of $1
table appearing in this chapter.

3. What advantage does the internal rate of return method have over the net
present value method in comparing projects?

No comments:

Post a Comment