Award: 18.18 points QS 24-10 Profitability index LO P3 Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $480,000 and has a present value of cash flows of $1,350,000. Project 2 requires an initial investment of $4 milion and has a present value of cash flows of $6 million. 1. Compute the profitability index for each project Profitability Index Choose Numerator:C Choose Denominator:Profitability Index Proftability inderx Project 1 Project 2 2. Based on the profitability index, which project should the company prefer? OProject 1 OProject 2 Hints Hint#1 Use the following information for the Quick Study below. The following information applies to the questions displayed belowj Following is information on an investment considered by Hudson Co. The investment has zero salvage value. The company requires a 6% return from its investments. Investment A1 $(320,000) Initial investment Expected net cash flows in year 180.000 112.000 97,000 References Section Break Use the following information for the Quick Study below. Award: 18.18 points QS 24-11 Net present value LO P3 Compute this investment's net present value. (PV of $1.FV of $1. PVA of $1, and FVA of S) (Use appropriate factor(s) from the tables provided. Round all present value factors to 4 decimal places.) Cash Flow Present Value Present Value | of 1 at 6% Year 1 Year 2 Year 3 Totals Amount invested Net present value Hints Hint#1 References Worksheet Difficulty: 2 Medium 10. Award: 18.18 points QS 24-18 Capital budgeting methods LO P1, P3 Siemens AG invests 90,000,000 to build a manufacturing plant to build wind turbines. The company predicts net cash flows of 18,000,000 per year for the next 5 years Assume the company requires an 10% rate of return from its investment, er ofS1. EV of S1. PVA.ot S1, and EVA of$1) (Use appropriate factor(s) from the tables provided.) (1) What is the payback period of this investment? Payback Period Choose Numerator: Choose Denominator:Payback Period Payback period (2) What is the net present value of this investment? (Any losses or outflows should be entered with a minus sign.) Chart Values are Based on: Cash Flow Select Chart Amount | x | PV Factor |-| Present Value Annual cash flow Net present value Award: 18.20 points Serial Problem Business Solutions LO P1, P2 Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer fumiture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. It will be o sell 100 units of the equipment's product each year. The expected depreciated on a straight.line basis. Business Solutons expects t annual income related to this equipment follows. 375,000 Sales Costs 200,000 50,000 Maserials, labor, and overhead (except depreciation) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income income taxes (30%) Net income 5 61.250 Required: (1) Compute the payback period. Payback Period Choose Numerator Choose Denominator. Payback Period Payback period 2) Compute the accounting rate of return for this equipment Accounting Rate of Return Choose Denominator: Accounting Rate of Return Accounting rate of return Choose Numerator
