CHAPTER 11 C LO 11- PA11-6 Evaluating Sustainability Projects Citco Company is considering investing up to $500,000 in a sustainability-tuluncing 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 cre- ate 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. The following table summarizes the costs and benefits of these three hypothetical projects: . Project A (Redesign production process) $(500,000) $ 100,000 8 years $ 80.000 Project B (Remodel office building) ${420,000) 60.000 10 years $ 75,000 Project (New training facility) $(320.000) 80,000 6 years $ 30,000 Required Investment Annual Cost Savings Project Life Salvage Value Payback Period NPV Profitability Index Internal Rate of Return Required: Required: 1. Assuming the cost of capital is 12 percent, complete the preceeding table by computing the payback period, NPV, profitability index, and internal rate of return. 2. Based strictly on the economic analysis, in which project should they invest? 3. What other factors should managers consider before reaching a final decision? 4. Repeat requirement 1 using a cost of capital of 14 percent. Which of the capital budgeting indi- cators changed and which remained the same? Why