Mountain Brook Company is considering two investment opportunities whose cash flows are provided below: Year Investment...
Mountain Brook Company is considering two investment
opportunities whose cash flows are provided below:
| Year | Investment A | Investment B | ||
| 0 | $ | (19,750) | $ | (14,700) |
| 1 | 6,710 | 6,710 | ||
| 2 | 6,710 | 5,520 | ||
| 3 | 6,710 | 5,090 | ||
| 4 | 5,520 | 3,280 |
The company's hurdle rate is 8%. What is the present value index of
Investment A? (Do not round your PV factors and intermediate
calculations.)
Homework Answers
| Present Value Index = Present value of cash inflows/Initial Investment | |||
| Year | Cash flows | PVF | PV |
| 1 | 6710 | 0.925925926 | 6212.962963 |
| 2 | 6710 | 0.85733882 | 5752.743484 |
| 3 | 6710 | 0.793832241 | 5326.614337 |
| 4 | 5520 | 0.735029853 | 4057.364787 |
| PV of cash inflows | 21349.68557 | ||
| Present Value Index | 1.0809967 | ||
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Mountain Brook Company is considering two investment
opportunities whose cash flows are provided below:
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