Question

Citco Company is considering investing up to $575,000 in a sustainability-enhancing project. Its managers have narrowed their choices to three potential projects. Project A would redesign the production process to recycle raw materials waste back into the production cycle, saving on direct materials costs and reducing the amount of waste sent to the landfill. Project B would remodel an office building, utilizing solar panels and natural materials to create a more energy-efficient and healthy work environment. Project C would build a new training center in an underserved community, providing jobs and economic security for the local community. Required 1. Assuming the co t of capital is 11%, complete the table below by computing the payback period, NPV Profitability Index, and Intemal Rate of Return Future a ue o $1. Present alue o $1 Future alue Annuity of$1, Present alue Annuity o 1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Negative amount should be indicated by minus sign. Round your "NPV answers to whole nearest dollar amounts. Round your "Pi" and "IRR" answers to 2 decimal places.) Project A Project B Project C (Remodel office building) New training facility) $ (729,000) $ (388,000) Required Investment Annual Cost Savings Project Life Salvage Value Payback Period NPV@ 11% Profitability index @ 11% Internal Rate of Return S (575,000) 115,000 97,000 81,000 10 years 6 years 84,000 62,000 36,000 9 years 4 years 5 years

Answer 1

	Project A		Project B		Project C
Required Investment	-575000		-729000		-388000
Annual cost savings	115000		81000		97000
Projected Life	8	Years	10	Years	6	Years
Salvage value	84000		62000		36000
Payback period	5	Years	9	Years	4	Years
NPV @ 11%	53253.9432		-230137		41609.24
Profitability Index @ 11%	1.09		0.68		1.11
Internal Rate of Return	13.40	%	3.21	%	14.51	%

NPV = Present value of cash inflows - initial cash outflow

Profitability Index = (NPV +Initial Investment) / Initial Investment