Question

Tasty Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows: Des Moines Cedar Rapids Total present value of net cash flow $712,500 $848,000 Amount to be invested (750,000) (800,000) Net present value $(37,500) $ 48,000 a. Determine the present value index for each proposal. Round your answers for the present value index to two decimal places.

Answer 1

0.95 and 1.06

Step-by-step explanation:

The computation of the present value index is shown below:

Present value index = Present Value of net cash Flow ÷ Amount invested

So for each projects, it would be

Particulars Des Moines Cedar Rapids

Total present value of

net cash flow (A) $712,500 $848,000

Amount invested (B) $750,000 $800,000

Present value index (A ÷ B) 0.95 1.06