Question #5 Idaho Farm Services Company has received two proposals for a new General-Purpose Wheat Harvester. Information provided for each harvester is as follows: Master Cutter Master Cutter Model 440 Model 480 Capital investment $415,000 $595,000 Annual cash flows $105,000 $270,000 Estimated useful life 10 years 10 years Idaho Farm uses a discount rate of 9% to evaluate both projects. Note: Factor for the Present Value of an Ordinary Annuity 10 years @9% = 6.41766 Instructions (a) Calculate the net present value of both models. (b) Calculate the profitability index for each model. (c) Which project should Idaho Farm Services accept? (d) What might be some "qualitative" factors to consider?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Question #5
Idaho Farm Services Company has received two proposals for a new General-Purpose
Wheat Harvester. Information provided for each harvester is as follows:
Master Cutter
Master Cutter
Model 440
Model 480
Capital investment
$415,000
$595,000
Annual cash flows
$105,000
$270,000
Estimated useful life
10 years
10 years
Idaho Farm uses a discount rate of 9% to evaluate both projects.
Note: Factor for the Present Value of an Ordinary Annuity 10 years @9% = 6.41766
Instructions
(a) Calculate the net present value of both models.
(b) Calculate the profitability index for each model.
(c) Which project should Idaho Farm Services accept?
(d) What might be some "qualitative" factors to consider?
Transcribed Image Text:Question #5 Idaho Farm Services Company has received two proposals for a new General-Purpose Wheat Harvester. Information provided for each harvester is as follows: Master Cutter Master Cutter Model 440 Model 480 Capital investment $415,000 $595,000 Annual cash flows $105,000 $270,000 Estimated useful life 10 years 10 years Idaho Farm uses a discount rate of 9% to evaluate both projects. Note: Factor for the Present Value of an Ordinary Annuity 10 years @9% = 6.41766 Instructions (a) Calculate the net present value of both models. (b) Calculate the profitability index for each model. (c) Which project should Idaho Farm Services accept? (d) What might be some "qualitative" factors to consider?
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