A Project Has Estimated Annual Cash Flows of $90,000 for 3

question 171

Essay

A project has estimated annual cash flows of $90,000 for 3 years and is estimated to cost $250,000. Assume a minimum acceptable rate of return of 10%. Using the following tables, determine the a) net present value of the project and b) the present value index, rounded to two decimal places.
Below is a table for the present value of $1 at compound interest. $$\begin{array} { l l l l } \text { Year } & 6 \% & 10 \% & 12 \% \\\hline 1 & 0.943 & 0.909 & 0.893 \\2 & 0.890 & 0.826 & 0.797 \\3 & 0.840 & 0.751 & 0.712 \\4 & 0.792 & 0.683 & 0.636 \\5 & 0.747 & 0.621 & 0.567\end{array}$$ Below is a table for the present value of an annuity of $1 at compound interest. $$\begin{array} { l l l l } \text { Year } & 6 \% & 10 \% & 12 \% \\\hline 1 & 0.943 & 0.909 & 0.893 \\2 & 1.833 & 1.736 & 1.690 \\3 & 2.673 & 2.487 & 2.402 \\4 & 3.465 & 3.170 & 3.037 \\5 & 4.212 & 3.791 & 3.605\end{array}$$

---

Definitions:

Purchasing Power Parity

An economic theory that states that the exchange rate between two currencies is equal to the ratio of the currencies' respective purchasing power.

Relative Purchasing

The comparison of the purchasing power of various currencies against goods and services, adjusting for their price differences in different countries.

Export Development Canada

A Canadian government agency that provides financing, insurance, and other support to Canadian exporters and investors.

Federal Crown

A term referring to the sovereign power of the government in a monarchy, especially in context to its authority and jurisdiction.