Flake Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $554,000, has an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows by $74,000. Project B will cost $386,000, has an expected useful life of 14 years and a salvage value of zero, and is expected to increase net annual cash flows by $53,000. A discount rate of 8% is appropriate for both projects.

Calculate the net present value and profitability index of each project.

Which project should be accepted based on net present value?

Which project should be accepted based on profitability index?