Bascilla, Incorporated is trying to determine the value of several projects. Currently there are four being examined:

Project Automation Hire Extra Crew Acquire a Supplier Purchase Latest Model of Equipment

Initial Cost $$650,000$ $$91,000$ $$1,200,000$ $$435,000$

Salvage Value $$90,000$ N$/$A N$/$A $$133,000$

Annual Increase to Net Income $$64,000$ $$17,000$ $$46,000$ $$46,000$

Project Life $($years$)1015208$

Hurdle Rate $12\%$

Automation requires a working capital amount to begin which will be released at year $10.$ $$25,000$

The equipment will require a major repair at year $4.$ $$48,000$

Required:

Compute the Net Present Value of each project.

Examine the Internal Rate of Return for each project.

Compute the Profitability Index for all projects.

Use the PV$()$ function to determine the TVM factors. Be sure to put a $"-"$ sign before the function and for cash out flows, and use $"1"$ as the PMT and FV amounts as necessary.

Automation

Event Amount Factor NPV

Initial Cost $1\mathrm{.}000000$

Net Income $($annual$)$

Depreciation Expense $($annual$)$

Working Capital

Salvage Value

NPV

Hire Extra Crew

Event Amount Factor NPV

Initial Cost $1\mathrm{.}000000$

Net Income $($annual$)$

NPV

Acquire a Supplier

Event Amount Factor NPV

Initial Cost $1\mathrm{.}000000$

Net Income $($annual$)$

NPV

Purchase Latest Model of Equipment

Event Amount Factor NPV

Initial Cost $1\mathrm{.}000000$

Net Income $($annual$)$

Depreciation Expense $($annual$)$

Repair at year $4$

Salvage Value

NPV

Which project's IRR is closest to the Hurdle Rate?

Which project has an IRR lower than the Hurdle Rate?

Use the SUM$()$ function in the calculated NPV charts and the Initial Cost in the original data to compute Profitability Index.

Project Automation Hire Extra Crew Acquire a Supplier Purchase Latest Model of Equipment

Profitability Index

Based on NPV alone, which project is best?

Based on Profitability Index alone, which project is best?