JK Products, Inc. is considering investing in either of two competing projects that will allow the...

 

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JK Products, Inc. is considering investing in either of two competing projects that will allow the firm to eliminate a production bottleneck and meet the growing demand for its products. The firm's engineering department narrowed the alternatives down to two-- Status Quo (SQ) and High Tech (HT). Working with the accounting and finance personnel, the firm's CFO developed the following estimates of the cash flows for SQ and HT over the relevant six-year time horizon. The firm has an 11 percent required return and views these projects as equally risky. Project SQ Project HT Initial Outlay Years 1 2 3 4 5 670,000 Cash Flows 940,000 250,000 170,000 200,000 150,000 180,000 170,000 200,000 250,000 130,000 300,000 a. Calculate the Net Present Value (NPV) of each project, assess its acceptability, and indicate which project is best, using NPV. b. Calculate the Internal Rate of Return (IRR) of each project, assess its acceptability, and indicate which project is best, using IRR. c. Calculate the Profitability Index (PI) of each project, assess its acceptability, and indicate which project is best, using Pl. d. Calculate the Payback Period (PP) of each project, assess its acceptability, and indicate which project is best, using PP. JK Products, Inc. is considering investing in either of two competing projects that will allow the firm to eliminate a production bottleneck and meet the growing demand for its products. The firm's engineering department narrowed the alternatives down to two-- Status Quo (SQ) and High Tech (HT). Working with the accounting and finance personnel, the firm's CFO developed the following estimates of the cash flows for SQ and HT over the relevant six-year time horizon. The firm has an 11 percent required return and views these projects as equally risky. Project SQ Project HT Initial Outlay Years 1 2 3 4 5 670,000 Cash Flows 940,000 250,000 170,000 200,000 150,000 180,000 170,000 200,000 250,000 130,000 300,000 a. Calculate the Net Present Value (NPV) of each project, assess its acceptability, and indicate which project is best, using NPV. b. Calculate the Internal Rate of Return (IRR) of each project, assess its acceptability, and indicate which project is best, using IRR. c. Calculate the Profitability Index (PI) of each project, assess its acceptability, and indicate which project is best, using Pl. d. Calculate the Payback Period (PP) of each project, assess its acceptability, and indicate which project is best, using PP.