Comparing net present values and present value indices

Assignment Help Accounting Basics
Reference no: EM132717955

Problem - Daisy's Creamery Inc. is considering one of two investment options. Option 1 is a $75,000 investment in new blending equipment that is expected to produce equal annual cash flows of $19,000 for each of seven years. Option 2 is a $90,000 investment in a new computer system that is expected to produce equal annual cash flows of $27,000 for each of five years. The residual value of the blending equipment at the end of the fifth year is estimated to be $15,000. The computer system has no expected residual value at the end of the fifth year.

Assume that there is sufficient capital to fund only one of the projects. Determine which project should be selected, comparing the (a) net present values and (b) present value indices of the two projects. Assume a minimum rate of return of 10%. Round the present value index to two decimal places.

Reference no: EM132717955

Questions Cloud

What are some of the strategies for reducing the risks : What is the weakest link in the security of an IT infrastructure? What are some of the strategies for reducing the risks?
Prepare the general journal entry for the entries : On January 2, 2016, Alpha Corporation issued 1,500 shares of $6 par value common stock. The issue price was $15 per share. On January 15, Alpha Corporation.
Prepare the journal entry for the first year : Coconut Plantations Pty Ltd purchased machinery for its manufacturing process on 1 March 2018. Prepare the journal entry for the 1st year.
Crypto currencies with applicable examples : Describe at least two crypto currencies with applicable examples. Discuss some similarities and differences.
Comparing net present values and present value indices : Determine which project should be selected, comparing the (a) net present values and (b) present value indices of the two projects
Estimate the minimum price the owner of the division : Using a tax rate of 37 percent, estimate the minimum price the owner of the division should consider for its sale. (Do not round intermediate calculations.)
Drive organizational strategy and is strategy : Why is it important for business strategy to drive organizational strategy and IS strategy? What might happen if the business strategy was not the driver?
Computing a present value factor for an annuity : Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the present value of an annuity table appearing
What can do to hedge the currency risk : Japanese Yen to appreciate against the U.S. dollar in 3 months' time when Yen payables need to be made, what can he/she do to hedge the currency risk?

Reviews

Write a Review

Accounting Basics Questions & Answers

  Discuss the company uses the weighted-average method

The following is partial information for the month of March for Macmillan International Inc., a two-department manufacturer that uses process costing

  How can the majority shareholder shift wealth

How can the majority shareholder shift wealth through accounting cost allocations and transfer pricing? What are the implications of the composition

  The most recent financial statements for abc company are

the most recent financial statements for abc company. are shown here income statement sales 8600 costs6020 net income

  Materials and manufacturing overhead resources

Big Thumbs Company manufactures portable flash drives for computers. Big Thumbs incurs monthly depreciation costs of $15,000 on its plant equipment and monthly advertising costs of $3,000 to place advertisements in magazines. Also, each drive requ..

  What amount of credit can kobe receive

He has AGI of $51,000 and paid $6,300 to a qualified day care center. What amount of credit can Kobe receive for the child and dependent care credit

  How much commission will the executive headhunter earn

If the headhunter provides 12 executives per year, who have an average basic salary of £150,000, how much commission will the executive headhunter earn

  Prepare the year-end entries to record the ore deposit

Montana Mining Co., Prepare the year-end entries to record both the ore deposit depletion and the mining machinery depreciation.

  Prepare the adjusting entry to record uncollectible accounts

Prepare the adjusting entry to record Uncollectible Accounts Expense under the following two independent scenarios (SHOW YOUR WORK)

  Discuss mortgage payments

Paul wants to purchase his own home. He currently lives in an apartment, and his rent is being paid by his parents.Paul's parents have informed him that they

  What would be the maximum purchase price acceptable

What would be the maximum purchase price acceptable to the Ski Pro Corporation for the bindings? Support your answer with an appropriate explanation

  Do not aggregate to the nearest earnings dollar

Do not aggregate to the nearest earnings dollar.

  Analyze the performance of pepsico or marriotts company

Division Performance Evaluation Project Using Excel - In this assignment you will analyze the performance of PepsiCo or Marriott's company divisions

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd