Reference no: EM132541492

McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $509,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $74,100. Project B will cost $342,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $50,700. A discount rate of 8% is appropriate for both projects.

Question 1: 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

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

Project B

Project A

should be accepted.

Question 2: Which project should be accepted based on profitability index?

Project A

Project B

should be accepted.