Suppose your company has the option to choose from two projects (A and B). By making an initial investment in year 0, each of these projects will generate a certain amount of profits over a 5-year period. Given the following information about their cash flow, calculate the profitability index and indicate what action you would do. Assume the cost of capital is 8%. (Correct to the nearest 3 decimal places) Year Project A Project B 0 $(1,300,000) $(1,900,000) 1 $300,000 $450,000 2 $300,000 $450,000 3 $300,000 $450,000 4 $300,000 $450,000 5 $300,000 $450,000

Suppose your company has the option to choose from two projects (A and B). By making an initial investment in year 0, each of these projects will generate a certain amount of profits over a 5-year period. Given the following information about their cash flow, calculate the profitability index and indicate what action you would do. Assume the cost of capital is 8%. (Correct to the nearest 3 decimal places) Year Project A Project B 0 $(1,300,000) $(1,900,000) 1 $300,000 $450,000 2 $300,000 $450,000 3 $300,000 $450,000 4 $300,000 $450,000 5 $300,000 $450,000

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4CMA: Foster Manufacturing is analyzing a capital investment project that is forecast to produce the...

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