11-9

Q2:

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $369,600 with a 8-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 147.840 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 231 Bee Sales costs Materials, labor and overhead (except depreciation on new equipient) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (40) Net income 81,aee 46, 2ee 23, iee 15e, Bee 80,7ee 32,280 $ 48,428 If at least an 9% return on this investment must be earned, compute the net present value of this Investment (PV of $1. FV of $1. PVA of $1. and EVA of $1) (Use approprlate factor(s) from the tables provided.) Chart Values are Based on no 8 56 Amount X PM Factor Present Value Select Chart Present Value of an Annuity of 1 3 04.620X S 0 Present value of cash inflows Present value of cash outflows Net present value Following is Information on two alternative investments being considered by Jolee Company. The company requires a 8% return from its investments. (PV of $1. FV of $1. PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project A (188325) Project B $(158, 960) Initial investment Expected net cash flows in: Year 1 Year 2 Year Year 4 Year 5 54, eua 48,00 84 295 94,400 56,000 26, edo 62, e8e 63, eae 77, ese 31, esa a. For each alternative project compute the net present value. b. For each alternative project compute the profitability Index. If the company can only select one project, which should it choose? Required A Required B For each alternative project compute the net present value. Project A Inital Investment S 188,325 Chart Values are Based on Year Cash Inflow M PV Factor Present Value 1 2 3 4 6 Projeot S 158.900 Initial Investment Year Cash Inflow X PV Factor Present Value 1 = 2 3 4 Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Profitability Index Choose Denominator: Choose Numeratori Profitability Index Profitability index Project A Project B If the company can only select one project, which should it choose?