A project has estimated annual net cash flows of $12,200 for five years and is estimated to cost $39,800.

A project has estimated annual net cash flows of $12,200 for five years and is estimated to cost $39,800. Assume a minimum acceptable rate of return of 12%. Using Exhibit 2, determine (1) the net present value of the project and (2) the present value index, rounded to two decimal places.

Answer:
a. $4,181 [($12,200 × 3.605) – $39,800]
b. 1.11 ($43,981 ÷ $39,800)