Question

Present Value Index Montana Grill has computed the net present value for capital expenditures for the Billings and Great Falls locations using the net present value method. Relevant data related to the computation are as follows: Billings Great Falls Total present value of net cash flow $882,000 $1,050,000 Amount to be invested 900,000 750,000 a. Determine the present value index for each proposal. Round to two decimal places.

Answer 1

• Billings ⇒ 0.98
• Great Falls ⇒ 1.40

Step-by-step explanation:

Present value index (PVI)= Total present value of net cash flow / Amount to be Invested

Billings PVI

= 882,000 / 900,000

= 0.98

Great Falls PVI

= 1,050,000 / 750,000

= 1.40