Waterway Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $445,000, has an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows by $68,000. Project B will cost $325,000, has an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows by $51,000. A discount rate of 10% is appropriate for both projects. Click here to view the factor table. Calculate the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.52. For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124.) Project B Net present value $ Profitability index Which project should be accepted based on net present value? Project A Project A Project B should be accepted. Which project should be accepted based on profitability index? should be accepted.
Waterway Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $445,000, has an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows by $68,000. Project B will cost $325,000, has an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows by $51,000. A discount rate of 10% is appropriate for both projects. Click here to view the factor table. Calculate the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.52. For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124.) Project B Net present value $ Profitability index Which project should be accepted based on net present value? Project A Project A Project B should be accepted. Which project should be accepted based on profitability index? should be accepted.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Waterway Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $445,000, has
an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows by $68,000. Project B
will cost $325,000, has an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows
by $51,000. A discount rate of 10% is appropriate for both projects.
Click here to view the factor table.
Calculate the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign
preceding the number e.g. -45 or parentheses e.g. (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers
to 2 decimal places, e.g. 15.52. For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124.)
Project A
Project B
Net present value $
Profitability index
Which project should be accepted based on net present value?
Project A
should be accepted.
Project B
$
Which project should be accepted based on profitability index?
should be accepted.
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