Answered: Citco Company is considering investing…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Citco Company is considering investing up to $500,000 in a sustainability-enhancing project. Its managers have narrowed their choices to three potential projects.

Project A would redesign the production process to recycle raw materials waste back into the production cycle, saving on direct materials costs and reducing the amount of waste sent to the landfill.
Project B would remodel an office building, utilizing solar panels and natural materials to create a more energy-efficient and healthy work environment.
Project C would build a new training center in an underserved community, providing jobs and economic security for the local community.

Required:
1. Assuming the cost of capital is 12%, complete the table below by computing the payback period, NPV, profitability index, and internal rate of return. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your "NPV" answers to the nearest whole dollar amounts. Round your "PI" and "IRR" answers to 2 decimal places.)

You received partial credit in the previous attempt.
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(Redesign
production
process)
(Remodel office
building)
(New training
facility)
Required investment
(500,000)
(420,000)
(320,000)
Annual cost savings
100,000
60,000
80,000
8 years
10 years
6 years
Project life
%24
80,000
75,000
30,000
Salvage value
5 years
7 years
4 years
Payback period
NPV @12%
Profitability index @12%
Internal rate of return
商
2. Based strictly on the economic analysis, in which project should they invest?
O Project A
O Project B
%24
%24
%24
%24
%24
%24
%24
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