Vista Company is considering two new projects, each requiring an equipment investment of $90,000. Each project will last for three years and produce the following
Vista Company is considering two new projects, each requiring an equipment investment of $90,000. Each project will last for three years and produce the following cash inflows:
| Year | Cool | Hot |
| 1 | $38,000 | $42,000 |
| 2 | $42,000 | $42,000 |
| 3 | $42,000 | $42,000 |
| $122,000 | $126,000 |
The equipment will have no salvage value at the end of its three-year life. Vista Company uses straight-line depreciation, and requires a minimum rate of return of 12%.
Present value data are as follows: Present Value of 1 Present Value of an Annuity of 1 Period 12% Period 12% 1 .89286 1 .89286 2 .79719 2 1.69005 3 .71178 3 2.40183
Instructions (a) Compute the net present value of each project. (b) Compute the profitability index of each project. (c) Which project should be selected? Why?
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Authors: Diana Mohamed
1st Edition
3848425378, 978-3848425372
