ABC Inc. is looking at investing in a 3-year project that will create cash inflows of $7,000 in the first year, $8,000 in the second year, and $9,000 in the third year. The cost of this project is $18,000, and the required return is 12%. Should the company invest in this project based on the profitability index criterion? Multiple Choice 1.14 1.45 1.38 0.94 1.06
1) ABC Inc. is looking at investing in a 3-year project that will create
-
1.14
-
1.45
-
1.38
-
0.94
-
1.062)
ABC Inc., a wedge manufacturer, is deciding between two machines used for making wedges. Machine A will cost $70,000 and Machine B will cost $120,000. The annual before-tax operating costs for Machine A and B are $7,500 and $6,000, respectively. Machine A will last for 2 years before it has to be replaced, whereas Machine B will last for 3 years before it must be replaced. The machines are subject to CCA rate of 30%, and the company's marginal tax rate is 35%. If the required return for ABC is 16%, which machine should ABC choose? Assume that salvage is zero.
Multiple Choice-
Choose Machine A as its EAC is lower by $1,480.
-
Choose Machine B as its EAC is higher by $6,761.
-
Choose Machine B as its EAC is higher by $1,480.
-
Choose Machine B as its EAC is lower by $6,761.
-
Choose Machine A as its EAC is lower by $6,761.
-
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
