Brief Exercise 24-5
McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $519,277, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $71,600. Project B will cost $367,031, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $51,800. A discount rate of 7% is appropriate for both projects. Click here to view PV table.
Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Net present value - Project A $
Profitability index - Project A
Net present value - Project B $
Profitability index - Project B
Which project should be accepted based on Net Present Value?
should be accepted.
Which project should be accepted based on profitability index?
should be accepted.
Brief Exercise 24-5 McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $519,277, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $71,600. Project B will cost $367,031, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $51,800. A discount rate of 7% is appropriate for both projects. Click here to view PV table. ecds. lick here ta vielo Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value-Project A s Profitability index - Project A Net present value- Project B Profitability index-Project B Which project should be accepted based on Net Present Value? should be accepted. Which project should be accepted based on profitability index? should be accepted Click if you would like to Show Work for this question: Open Show Work
