Question
McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $ 506,000, has an expected useful life of 12 years,
McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $ 506,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $ 69,900. Project B will cost $ 314,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $ 45,200. A discount rate of 7% 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 $ enter a dollar amount rounded to 0 decimal places
Profitability index - Project A enter the profitability index rounded to 2 decimal places
Net present value - Project B $ enter a dollar amount rounded to 0 decimal places
Profitability index - Project B enter the profitability index rounded to 2 decimal places
Which project should be accepted based on Net Present Value? select a projectselect a project should be accepted.
Which project should be accepted based on profitability index? select a projectselect a project should be accepted.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started