Beacon Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000.

Project B will cost $280,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $50,000. A discount rate of 9%

is appropriate for both projects. Compute the net present value and profitability index of each project. Which project should be accepted?

AppendixLO1