Ivanhoe Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $415,000,...

Transcribed Image Text:

Ivanhoe Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $415,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $71,500. Project B will cost $294,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $52,000. A discount rate of 10% is appropriate for both projects. Click here to view the factor table Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round present value answers to O decimal places, eg. 125 and profitability index answers to 2 decimal places, eg. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A $ 49399.65 Profitability index-Project A 1.12 Net present value - Project B $ 43.74520 Profitability index-Project B 11480 Which project should be accepted based on Net Present Value? Project A should be accepted. SUPPORT Ivanhoe Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $415,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $71,500. Project B will cost $294,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $52,000. A discount rate of 10% is appropriate for both projects. Click here to view the factor table Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round present value answers to O decimal places, eg. 125 and profitability index answers to 2 decimal places, eg. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A $ 49399.65 Profitability index-Project A 1.12 Net present value - Project B $ 43.74520 Profitability index-Project B 11480 Which project should be accepted based on Net Present Value? Project A should be accepted. SUPPORT

Answer rating: 100% (QA)

1 Net present value of Project A 71500 2 ... View the full answer