Question
Sheffield Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $523,000, has an expected useful life of 12 years, a
Sheffield Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $523,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $72,100. Project B will cost $324,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $46,400. 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 your answer in dollars rounded to 0 decimal places | ||
---|---|---|---|
Profitability index - Project A | enter your answer rounded to 2 decimal places | ||
Net present value - Project B | $enter your answer in dollars rounded to 0 decimal places | ||
Profitability index - Project B | enter your answer rounded to 2 decimal places |
Which project should be accepted based on Net Present Value?
select between Project A and Project B Project BProject A should be accepted. |
Which project should be accepted based on profitability index?
select between Project A and Project B Project BProject A should be accepted. |
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