Question
McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $448,459, has an expected useful life of 11 years, a
McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $448,459, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,100. Project B will cost $299,101, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $50,300. A discount rate of 9% is appropriate for both projects.Click here to view PV table.
Compute the net present value and profitability index of each project.(If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Net present value - Project A$
Profitability index - Project A
Net present value - Project B$
Profitability index - Project B
Which project should be accepted based on Net Present Value?
Project A or B should be accepted
Which project should be accepted based on profitability index?
Project A or B should be accepted
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