Crane Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $523,000, has an expected useful life of 12 years and 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 and 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 the factor 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 O 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? should be accepted. Which project should be accepted based on profitability index? should be accepted.
Crane Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $523,000, has an expected useful life of 12 years and 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 and 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 the factor 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 O 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? should be accepted. Which project should be accepted based on profitability index? should be accepted.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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