Question

Weygandt, Managerial Accounting, 7e W PLUS: the Male Contact Introductory Managerial Accounting (ACET 2101 - Assignment Gradebook ORION Downloadable eTextbook CALCIRATOR MESSAGE HY INSTRUCTOR PRINTER VERSION BACK Brief Exercise 12-5 Mcknight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $10,631, has an expected useful le of 12 years, a salvage value ofrere, and is expected to increase net annual cash flows by $74,300. Project will cost $329500, has an expected useful We of 12 years, a salvage value of zero, and is expected to increase not anual cash flows by $49,600. A decount rate of 8% is appropriate for both projects. Click here to view PIANO Compute the net present value and profitability index of each project. (If the newesent value is negative, use either a native sin preceding the number 45 or parentheses (45) Bound present value answers to decimal places, e... 125 and profitability index answers to 2 decimal places, .. 15.25. For calculation purposes, use S decimal places as displayed in the factor table provided) Net present value - Project A $ Profitability index - Project A Net present value - Project B $ Profitability index. Project Which project should be accepted based on Net Present Value? should be accepted Which project should be accepted based on profitability index? should be accepted Click if you would like to show Work for this question: Open Show Poloxi 2000-2001 W AIR ve AWD de EM AM 9/12/2020 Search O

Answer 1

		Given Information
		Project A Cost	510631
		Life Of Project A	12 Year
		Increase in Net Annual Cashflow from Project A	74300
		Project B Cost	329590
		Life Of Project B	12 Year
		Increase in Net Annual Cashflow from Project B	49600
		Discount rate	8%
	Year	Particular	Project A (x)	Project B (y)	Present Value Factor @8% (z)	Present Value of Project A (x * z)	Present Value of Project B (y* z)
	1	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.9259	$      68,796.30	$     45,925.93
	2	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.8573	$      63,700.27	$     42,524.01
	3	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.7938	$      58,981.74	$     39,374.08
	4	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.7350	$      54,612.72	$     36,457.48
	5	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.6806	$      50,567.33	$     33,756.93
	6	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.6302	$      46,821.60	$     31,256.41
	7	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.5835	$      43,353.34	$     28,941.12
	8	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.5403	$      40,141.98	$     26,797.34
	9	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.5002	$      37,168.50	$     24,812.35
	10	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.4632	$      34,415.28	$     22,974.40
	11	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.4289	$      31,866.00	$     21,272.59
	12	Increase in Net Annual Cashflow	$     74,300.00	$     49,600.00	0.3971	$      29,505.55	$     19,696.84
		Pv Of Cash inflow (a)				$   5,59,930.60	$ 3,73,789.47
		PV of cash Outflow (b)				$   5,10,631.00	$ 3,29,590.00
		Net Present Value (a-b)				$      49,300	$     44,199
		Profitability index (a/b)				1.10	1.13
	Answer
		Net Present Value - Project A	$          49,300
		Profitability Index - Project A	1.10
		Net Present Value - Project B	$          44,199
		Profitability Index - Project B	1.13

Based on NPV Project A should be Accepted , as NPV is higher than Project B

Based on Profitability Index  Project B should be Accepted , as Profitability Index is greater than Project A