Using NPV and profitability index to make capital investment decisions

Use the NPV method to determine whether Hawkins Products should invest in the following projects:

• Project A: Costs 5285,000 and offers seven annual net cash inflows of $55,000. Hawkins Products requires an annual return of 14% on investments of this nature.

• Project B: Costs S395,000 and offers 10 annual net cash inflows of 577,000. Hawkins Products demands an annual return of 12% on investments of this nature.

Requirements

1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places.

2. What is the maximum acceptable price to pay for each project?

3. What is the profitability index of each project? Round to two decimal places.

Answer rating: 100% (QA)

Before doing large amount of investment and or capital expenditure company evaluates all the available alternatives Process of such evaluation of pote... View the full answer