Question
aughn Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $530,000, has an expected useful life of 12 years, a
aughn Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $530,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,000. Project B will cost $346,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $48,800. A discount rate of 7% is appropriate for both projects.
et present value - Project A | $ | ||
Profitability index - Project A | |||
Net present value - Project B | $ | ||
Profitability index - Project B |
Which project should be accepted based on Net Present Value?
Project AProject B should be accepted. |
Which project should be accepted based on profitability index?
Project AProject B should be accepted. |
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