Present Value Index Hot on the Spot Doughnuts has computed the net present value

Question

Present Value Index

Hot on the Spot Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows:

a. Determine the present value index for each proposal. Round your answer for the present value index to two decimal places.

b. Which location does your analysis support? (If both present value indexes are the same, either location will grade as correct.)

Mission City Cedar Rapids Total present value of net cash flow $196,730 $217,920 Less amount to be invested 191,000 227,000 Net present value $5,730 $(9,080)

Explanation / Answer

Hence mission city having higher PI is to be supported.

MissionCity Cedar Rapids Total present value of net cash flow 196730 217920 Amount to be invested 191000 227000 PI=(Total present value of net cash flow/Amount to be invested) (196730/191000) =1.03 (217920/227000) =0.96

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