An investment that costs $6,300 will produce annual cash flows of $2,780 for a period of 4 years. Given a desired rate of return of 9%, what is the present value index? (PV of $1and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round your answer to three decimal points.)

Question

Quizplus · Accepted Answer

The present value index is calculated by dividing the present value of the cash inflows by the initial investment. First, find the present value of the annual cash flows using the Present Value Annuity (PVA) factor for 9% over 4 years, which is 3.2397. Multiply the annual cash flow ($2,780) by the PVA factor to get the total present value of the cash inflows: $2,780 * 3.2397 = $9,005.986. Then, divide this by the initial investment of $6,300 to get the present value index: $9,005.986 / $6,300 = 1.430 (rounded to three decimal points).

An Investment That Costs $6,300 Will Produce Annual Cash Flows