Question
For this problem, assume that Taylor is considering investing in one or more of the following projects: Project A: Expand the manufacturing facility to increase
For this problem, assume that Taylor is considering investing in one or more of the following projects:
Project A: Expand the manufacturing facility to increase capacity by 20 percent. This investment is expected to cost $360,000 and generate net cash flow of $80,000 per year for the next eight years.
Project B: Overhaul the company website to optimize the user experience and generate more traffic from online advertising. This project would cost $200,000 and is expected to generate an additional $100,000 in sales for the next 10 years. Assume that the contribution margin is 42 percent and that there would be no increase in fixed costs, including depreciation.
Project C: Invest in solar panels and more fuel-efficient delivery vehicles to reduce operating expenses (e.g., electricity and fuel) and the companys carbon footprint. The initial investment in assets would be $360,000, which would be depreciated over five years. The investment is expected to increase net income by $18,000 per year, after the depreciation adjustment.
Required:
2. Compute the NPV of each project assuming the cost of capital is 10 percent.
Note: Round your PV amounts to 4 decimal places.
NPV | |
Project A | $66,792selected answer correct |
Project B | $48,073selected answer correct |
Project C | $18,829 selected answer incorrect |
3. Compute the profitability index of each project.
Note: Round your answer to 2 decimal places.
Profitability index | |
Project A | 1.19selected answer correct |
Project B | 1.24selected answer incorrect |
Project C | 0.95 selected answer correct |
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