Question
Gary King is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Gary uses a 12% discount rate. Option
Gary King is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Gary uses a 12% discount rate.
Option 1 Option 2
Equipment purchase and installation
$71,300 $82,260
Annual cash flow
$28,200 $30,690
Equipment overhaul in year 6
$4,590 -
Equipment overhaul in year 8
- $5,970
Calculate the profitability index of the two opportunities. Which option should he chose?
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Managerial Accounting An Integrative Approach
Authors: C J Mcnair Connoly, Kenneth Merchant
2nd Edition
099950049X, 978-0999500491
