Reference no: EM131161099
Managerial Accounting Week 5 DQ
Capital Investment Evaluation
Select one of the capital investment evaluation methods describedt. Fully explain the capital evaluation method's strengths and weaknesses. Take a position and defend the use of your selected method. Be sure to use at least two scholarly sources to support your position. Your initial post should be 200-250 words.
Ranking Investment Alternatives
Grosvenor Industries has designated $1.2 million for capital investment expenditures during the upcoming year. Its cost of capital is 14 percent. Any unused funds will earn the cost of capital rate. The following investment opportunities along with their required investment and estimated net present values have been identified:
|
Project
|
Net Investment
|
NPV
|
Project
|
Net Investment
|
NPV
|
|
A
|
$200,000
|
$22,000
|
F
|
$250,000.00
|
$30,000.00
|
|
B
|
$275,000
|
$21,000
|
G
|
$100,000.00
|
$7,000.00
|
|
C
|
$150,000
|
$6,000
|
H
|
$200,000.00
|
$18,000.00
|
|
D
|
$190,000
|
-$19,000
|
I
|
$210,000.00
|
$4,000.00
|
|
E
|
$500,000
|
$40,000
|
J
|
$250,000.00
|
$35,000.00
|
In your response, complete the following:
• Rank the projects using the profitability index. Considering the limit on funds available, which projects should be accepted?
• Using the NPV, which projects should be accepted, considering the limit on funds available?
• If the available investment funds are reduced to only $1,000,000:
o Does the list of accepted projects change from Part 2?
o What is the opportunity cost of the eliminated $200,000?