McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A
will cost $400,000, has an expected useful life of 10 years and a salvage value of zero, and is expected to
increase net annual cash flows by $70,000. Project B will cost $310,000, has an expected useful life of 10
years and a salvage value of zero, and is expected to increase net annual cash flows by $55,000. A discount
rate of 9% is appropriate for both projects. Click here to view PV 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 0 decimal places, e.g. 125 and profitability index answers to 2 decimal
places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table
provided.)
Net present value - Project A
Profitability index - Project A
$
Net present value - Project B
$
Profitability index - Project B
Which project should be accepted based on Net Present Value?
\text{\textbullet} should be accepted.
Which project should be accepted based on profitability index?
\text{\textbullet} should be accepted.
