An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years.Given a desired rate of return of 8%,what is the present value index? (PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.Do not round your 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, we find the present value of the annual cash flows using the Present Value Annuity (PVA) factor for 8% over 4 years, which is 3.31213. So, the present value of cash inflows = $2,000 * 3.31213 = $6,624.26. Then, divide this by the initial investment of $5,000 to get the present value index = $6,624.26 / $5,000 = 1.32485, rounded to three decimal points gives 1.325.

An Investment That Costs $5,000 Will Produce Annual Cash Flows