Explanation Net present value (NPV): It is the difference between sums of present value of cash inflows and initial investment over the life of the project. Project with positive or higher NPV is accepted and projects with lower or negative NPV may be rejected. Given: NPV of project A is $65,000. NPV of project B is $180,000. NPV of project C is $220,000. As the project C has the highest NPV among the given options. When there is limited fund is available with the company then capital rationing is done to find the best available to do investment. When there is comparison among projects on the basis of NPV the profitability is calculated to find out the best project as NPV method may be confusing in this case. Profitability index (PI): It is the ratio of total of present value of project cash inflows to the total investment. This ratio shows better picture for investment decision in the project. PI ratio should be more than 1 for the project for acceptance. Projects with PI value lesser than 1 should be rejected as will have negative NPV and it will not be able to recoup the investment amount completely...

Managerial Accounting, Student Value Edition Plus New Myaccountinglab With Pearson Etext -- Access Card Package (4th Edition) By Braun, Karen W., Tietz, Wendy M. (2014) Loose Leaf

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Author: Karen Braun And Wendy Tietz

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Chapter 12, Problem 12.31AE

To determine

The best project in which company BM should invest.

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Chapter 12, Problem 12.30AE

Chapter 12, Problem 12.32AE

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Managerial Accounting, Student Value Edition Plus New Myaccountinglab With Pearson Etext -- Access Card Package (4th Edition) By Braun, Karen W., Tietz, Wendy M. (2014) Loose Leaf

Ch. 12 - Prob. 1QC Ch. 12 - Prob. 2QC Ch. 12 - Prob. 3QC Ch. 12 - Prob. 4QC Ch. 12 - Prob. 5QC Ch. 12 - Prob. 6QC Ch. 12 - Prob. 7QC Ch. 12 - Prob. 8QC Ch. 12 - Prob. 9QC Ch. 12 - Prob. 10QC

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