The management of Dakota Corporation is considering the purchase of a new machine costing $420,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: YearIncome from OperationsNet Cash Flow 1$100,000 $180,000 240,000 120,000 320,000 100,000 410,000 90,000 510,000 90,000 The present value index for this investment is a.1.14 b.1.45 c.0.70 d.1.08

d. 1.08

Explanation:

The computation of the present value index is as follows

The Present value Index is

= Total Present Value of Net cash Inflows ÷ Investment  

= $455,200 ÷ $420,000  

= 1.08  

The total present value would be

Year     Net Cash Flow  Present Value factor  Present Value

1            $1,80,000                 0.909               $1,63,620

2           $1,20,000                 0.826                     $99,120

3           $1,00,000                0.751                      $75,100

4           $90,000                    0.683                    $61,470

5           $90,000                    0.621                     $55,890

Total Present Value of Net cash Inflows            $4,55,200

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