The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:YearWind Turbines Biofuel Equipment 1$280,000 $500,000 2280,000 500,000 3280,000 500,000 4280,000 500,000 The wind turbines require an investment of $850,360, while the biofuel equipment requires an investment of $1,427,500. No residual value is expected from either project.Present Value of an Annuity of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.58954.2123.7913.6053.3532.99164.9174.3554.1113.7853.32675.5824.8684.5644.1603.60586.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192Required:1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar. Wind TurbinesBiofuel EquipmentPresent value of annual net cash flows$ fill in the blank 1$ fill in the blank 2Less amount to be investedfill in the blank 3fill in the blank 4Net present value$ fill in the blank 5$ fill in the blank 6 1b. Compute a present value index for each project. If required, round your answers to two decimal places. Present Value IndexWind Turbinesfill in the blank 7Biofuel Equipmentfill in the blank 82. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent. Wind Turbines Biofuel EquipmentPresent value factor for an annuity of $1fill in the blank 9 fill in the blank 10 Internal rate of returnfill in the blank 11%fill in the blank 12% Cash Payback Period, Net Present Value Method, and AnalysisElite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:YearPlant ExpansionRetail Store Expansion$136,000$114,0002112,000134,000396,00092,000487,00064,00028,00055,000Total$459,000$459,000Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.Present Value of $1 at Compound InterestYear6%10%12%15%20%0.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.4820.7470.6210.5670.4970.4020.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.2330.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:la. Compute the cash payback period for each project.Cash Payback PeriodPlant Expansion2 yearsRetail Store Expansion2 years1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.Plant ExpansionRetail Store ExpansionTotal present value of net cash flowLess amount to be invested 1$136,000$114,000112,000134,00096,00092,000487,00064,000528,00055,000Total$459,000$459,000Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.8330.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.4820.7470.6210.5670.4970.4020.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.2330.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:la. Compute the cash payback period for each project.Cash Payback PeriodPlant Expansion2 yearsRetail Store Expansion2 years1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.Plant ExpansionRetail Store ExpansionTotal present value of net cash flowLess amount to be investedNet present value2. Because of the timing of the receipt of the net cash flows, the plant expansionoffers a higher net present value2.3.

The question is based on the concept of Financial Management. As per the Bartleyby guidelines we are…

Answered: The management of Advanced Alternative…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PA

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Question

The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:

Year	Wind Turbines	Biofuel Equipment
1	$280,000	$500,000
2	280,000	500,000
3	280,000	500,000
4	280,000	500,000

The wind turbines require an investment of $850,360, while the biofuel equipment requires an investment of $1,427,500. No residual value is expected from either project.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

Required:

1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar.

	Wind Turbines	Biofuel Equipment
Present value of annual net cash flows	$ fill in the blank 1	$ fill in the blank 2
Less amount to be invested	fill in the blank 3	fill in the blank 4
Net present value	$ fill in the blank 5	$ fill in the blank 6

1b. Compute a present value index for each project. If required, round your answers to two decimal places.

	Present Value Index
Wind Turbines	fill in the blank 7
Biofuel Equipment	fill in the blank 8

2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent.

	Wind Turbines		Biofuel Equipment
Present value factor for an annuity of $1	fill in the blank 9		fill in the blank 10
Internal rate of return	fill in the blank 11	%	fill in the blank 12	%

Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
$136,000
$114,000
2
112,000
134,000
3
96,000
92,000
4
87,000
64,000
28,000
55,000
Total
$459,000
$459,000
Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
0.747
0.621
0.567
0.497
0.402
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
la. Compute the cash payback period for each project.
Cash Payback Period
Plant Expansion
2 years
Retail Store Expansion
2 years
1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.
Plant Expansion
Retail Store Expansion
Total present value of net cash flow
Less amount to be invested

1
$136,000
$114,000
112,000
134,000
96,000
92,000
4
87,000
64,000
5
28,000
55,000
Total
$459,000
$459,000
Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
0.747
0.621
0.567
0.497
0.402
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
la. Compute the cash payback period for each project.
Cash Payback Period
Plant Expansion
2 years
Retail Store Expansion
2 years
1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.
Plant Expansion
Retail Store Expansion
Total present value of net cash flow
Less amount to be invested
Net present value
2. Because of the timing of the receipt of the net cash flows, the plant expansion
offers a higher net present value
2.
3.

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