McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $493,660, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $68,400. Project B will cost $330,906, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $47,000. A discount rate of 7% is appropriate for both projects.

Compute the net present value and profitability index of each project.

Net 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?

Which project should be accepted based on profitability index?