Present Value Index Montana Grill has computed the net present value for capital

Question

Present Value Index Montana Grill has computed the net present value for capital expenditures for the Billings and Great Falls locations using the net present value method. Relevant data related to the computation are as follows: Total present value of net cash flow Amount to be invested Billings Great Falls $219,520 $275,010 267,000 224,000 a. Determine the present value index for each proposal. Round to two decimal places. Present Value Index Billings Location Great Falls Location b. If Montana Grill can fund only one location, which location should be funded? Great Falls

Explanation / Answer

Present value Index

= Total present value of net cash flows / Amount to be Invested

The following table shows the calculations

Location which should be funded is based upon value of Present value Index. The location which has the higher Present value Index will be selected first

So, Great Falls will be selected first

Calculations Particulars Billings Great Falls A Total present value of net cash flows    219,520       275,010 B Amount to be Invested    224,000       267,000 C = A / B Present value Index 0.98 1.03 D = Highest to lowest C Ranking 2 1

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---