Wildhorse Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $435,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $74,600. Project B will cost $253,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $45,200. A discount rate of 10% is appropriate for both projects. Click here to view PV table. Compute 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 eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A   $enter the number rounded to 2 decimal places    Profitability index - Project A   enter the profitability index rounded to 2 decimal places   Net present value - Project B   $enter a dollar amount rounded to 0 decimal places    Profitability index - Project B   enter the number rounded to 2 decimal places   Which project should be accepted based on Net Present Value? select a project                                                            should be accepted.   Which project should be accepted based on profitability index?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Wildhorse Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $435,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $74,600. Project B will cost $253,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $45,200. A discount rate of 10% is appropriate for both projects. Click here to view PV table.

Compute 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 eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Net present value - Project A
  $enter the number rounded to 2 decimal places   
Profitability index - Project A
  enter the profitability index rounded to 2 decimal places  
Net present value - Project B
  $enter a dollar amount rounded to 0 decimal places   
Profitability index - Project B
  enter the number rounded to 2 decimal places  


Which project should be accepted based on Net Present Value?

select a project                                                            should be accepted.  


Which project should be accepted based on profitability index?

select a project                                                            should be accepted.
 
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