An investment that costs $5,800 will produce annual cash flows of $2,480 for a period of 4 years. Given a desired rate of return

Question

1 year ago

5

of 9%, what is the present value index?

1 answer:

aleksandrvk [35] · Answer 1 · 2024-04-06T06:19:06+03:00

Based on the present value of the annual cash flows and the investment cost, the present value index is 1.39

<h3>How is the present value index calculated?</h3>

To find the present value index, use the formula:

= Present value of cash flow/Investment cost

The present value of cash flow is:

= Annual cash flows x Present value interest factor of annuity, 9%, 4 years

= 2,480 x 3.239719877

= $8,034.51

The present value index is:

= 8,034.51 / 5,800

= 1.39

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