Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below: The company's hurdle rate is 12%. What is the present value index of Investment B? Use Appendix Table 1. (Do not round your intermediate calculations. Round your answer to two decimal points.)

Question

Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below:  The company's hurdle rate is 12%. What is the present value index of Investment B? Use Appendix Table 1. (Do not round your intermediate calculations. Round your answer to two decimal points.)

Quizplus · Accepted Answer

Net present value of cash inflows = Expected cash flows × PV factor for each period
Present value of cash inflows = [($5,000 × 0.892857) + ($4,000 × 0.797194) + ($3,000 × 0.711780) + ($1,000 × 0.635518)] = $10,424 (rounded)
PV factors from Appendix Table 1 (n = 1, 2, 3, and 4, respectively, i = 12)
Present value index = Present value of cash inflows ÷ Present value of cash outflows
Present value index = $10,424 ÷ $9,000 = 1.16

Shenandoah Springs Company Is Considering Two Investment Opportunities Whose Cash