Using NPV and profitability index to make capital investment decisions Use the NPV method to determine whether Hawkins Products should invest in the following projects: Project A: Costs $285,000 and offers seven annual net cash inflows of $55,000, Hawkins Products requires an annual return of 14% on investments of this nature. Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Hawkins Products demands an annual return of 12% on investments of this nature. Requirements What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. What is the maximum acceptable price to pay for each project? What is the profitability index of each project? Round to two decimal places.
Using NPV and profitability index to make capital investment decisions Use the NPV method to determine whether Hawkins Products should invest in the following projects: Project A: Costs $285,000 and offers seven annual net cash inflows of $55,000, Hawkins Products requires an annual return of 14% on investments of this nature. Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Hawkins Products demands an annual return of 12% on investments of this nature. Requirements What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. What is the maximum acceptable price to pay for each project? What is the profitability index of each project? Round to two decimal places.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Using
Use the NPV method to determine whether Hawkins Products should invest in the following projects:
Project A: Costs $285,000 and offers seven annual net
Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Hawkins Products demands an annual return of 12% on investments of this nature.
Requirements
- What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places.
- What is the maximum acceptable price to pay for each project?
- What is the profitability index of each project? Round to two decimal places.
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