WBPOI TH brder for the project to be acceptable? Assume a d have to be heCalcula
ID: 2590336 • Letter: W
Question
WBPOI TH brder for the project to be acceptable? Assume a d have to be heCalculate the net present value.) be wOrEN in IeHow much would the reduction in doswntime ?Assume a discount rate of 9%. Hint 2-5 McKnight Company is considering two different, mutually ex le of 10 years, a and profita diture proposals. Project A will cost $400,000, hars capital Compute ne will cost $310 expeaatue of zero, and is expected to increase net annual cash flows by salvage t $310,000, has an expected useful life of 10 years a salvage vof9%is appropriate r both projects. Compute the net present value and profitability index of eac useful life of 10 years, a $70,000. Project B (LO 2,3 each project. h flows by value of zero, nd is to increase net annual cash flows by $55,000. A discount rat expected to i which project should be accepted? dit of nroiect completed one year ago. PeExplanation / Answer
NPV is high with project A, hence Project A is accepted.
Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Initial investment (4,00,000) Annual cash flows 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 Net cash flow (4,00,000) 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 Discount rate@ 9.00% 1.0000 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 0.5019 0.4604 0.4224 Discounted cash flow (4,00,000.00) 64,220.18 58,917.60 54,052.84 49,589.76 45,495.20 41,738.71 38,292.40 35,130.64 32,229.94 29,568.76 NPV 49,236.04 Present value of cash inflows A 4,49,236.04 Present value of cash outflows B 4,00,000.00 PI A/B 1.12Related Questions
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