Excess present value index. The ChipTech Company is considering the acquisition offour ©

capital investment projects. The projects under consideration are mutually exclusive. The —_ gycess present value company is considering buying new design equipment for which each project is identified as _index, Design Pro, 150%

Design Pro and Easychip. Also under consideration are two other capital investments which internally are referenced as projects C and D.

The following table describes the financial characteristics of these projects:

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 ChipTech choose Design Pro or Easychip?
2. Supposing ChipTech must choose one of Design Pro or Easychip, and supposing Chip Tech has a capital investment budget of $1,140,000, which projects should ChipTech choose?
3. Comment on your answers to requirements 1 and 2.LO1

Transcribed Image Text:

Project Design Pro $ 900,000 Present Value of Cash Inflows at 14% Required Rate of Return Net Initial Investment $600,000 Easychip 1,260,000 900,000 Project C 702,000 540,000 Project D 384,000 240,000