Beacon Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $551,677, has an expected useful life of 14 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,700. Project B will cost $327,814, has an expected useful life of 14 years, a salvage value of zero, and is expected to increase net annual cash flows by $45,800. A discount rate of 8% is appropriate for both projects.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
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.)
Project A Project B Net present value $ $ Profitability index
Which project should be accepted?
Project BProject A should be accepted.
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