Reference no: EM132514864

McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $411,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $71,000. Project B will cost $273,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $48,800. A discount rate of 10% is appropriate for both projects. Click here to view PV table.

Question 1: Compute the net present value and profitability index of each project.

Net present value - Project A$

Profitability index - Project A

Net present value - Project B$

Profitability index - Project B

Question 2: Which project should be accepted based on Net Present Value?

Project A

Project B

should be accepted.

Question 3: Which project should be accepted based on profitability index?

Project B

Project A

should be accepted.