1. McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $543,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $74,600. Project B will cost $319,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $45,600. A discount rate of 7% is appropriate for both projects. Click here to view the factor 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		$enter a dollar amount rounded to 0 decimal places
Profitability index - Project A		enter the profitability index rounded to 2 decimal places
Net present value - Project B		$enter a dollar amount rounded to 0 decimal places
Profitability index - Project B		enter the profitability index rounded to 2 decimal places

Which project should be accepted based on Net Present Value?

select a project Project BProject A should be accepted.

Which project should be accepted based on profitability index?

select a project Project AProject B should be accepted.

2. Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $134,020 and will increase annual expenses by $73,000 including depreciation. The oil well will cost $442,000 and will have a $10,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 0 decimal places, e.g. 13%.)

Annual rate of return

enter the Annual rate of return in percentages rounded to 0 decimal places %

3. Ranger Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following.

		Solar		Wind
Present value of annual cash flows		$51,570		$128,658
Initial investment		$38,200		$104,600

Determine 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.)

		Solar		Wind
Net present value		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places
Profitability index		enter the profitability index rounded to 2 decimal places		enter the profitability index rounded to 2 decimal places

Which energy source should it choose?

The company should choose select an option solarwind energy source.