Excess present value index. The Bristol Company is a design engineering firm that special izes in designing
Question:
Excess present value index. The Bristol Company is a design engineering firm that special¬
izes in designing different types of application-specific chips for the semiconductor industry. It is considering buying new design equipment and has identified two mutually exclusive options, Design Pro and Easychip. It is also considering other capital investments (coded C and D).
The following table describes the financial characteristics ofthese projects:
Present Value ofCash Inflows Net Initial Project at 14% Required Rate ofReturn Investment Design Pro Easychip Project C Project D
$ 900,000 1,260,000 702,000 384,000
$600,000 900,000 540,000 240,000 Required 1. For each project, calculate
(a) the net present value and
(b) the excess present value index.
On the basis of the excess present value index only, should Bristol choose Design Pro or Easychip?
2. Supposing Bristol must choose one of Design Pro or Easychip, and supposing Bristol has a capital investment budget of $1,140,000, which projects should Bristol chooser 3. Comment on your answers to requirements 1 and 2.
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 9780131971905
4th Canadian Edition
Authors: Charles T. Horngren, George Foster, Srikant M. Datar, Howard D. Teall