resent Value Index hen funds for capital investments are limited, projects can be ranked using a present value index. A project with a negative net present value will have a present value index below 1.0. Also, it is important to note that a project witht et present value may, in fact, return a lower present value per dollar invested. t's look at an example of how to determine the present value index. e company has a project with a 5-year life, an initial investment of $170,000, and expected to yield annual cash flows of $58,000. Whathat is the present value index of the project if the required rate of return is set at 6%? Total present value of net cash flows resent value index Initial investment alculation Steps ote: Round total present value of net cash flows and initial investment to nearest dollar. Round present value index to two decimal places. $ 244,319 X
resent Value Index hen funds for capital investments are limited, projects can be ranked using a present value index. A project with a negative net present value will have a present value index below 1.0. Also, it is important to note that a project witht et present value may, in fact, return a lower present value per dollar invested. t's look at an example of how to determine the present value index. e company has a project with a 5-year life, an initial investment of $170,000, and expected to yield annual cash flows of $58,000. Whathat is the present value index of the project if the required rate of return is set at 6%? Total present value of net cash flows resent value index Initial investment alculation Steps ote: Round total present value of net cash flows and initial investment to nearest dollar. Round present value index to two decimal places. $ 244,319 X
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 12SP
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