Managerial Accounting
BE12-5
Orkin Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $395,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows of $70,000. Project B will cost $270,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase new annual cash flows by $50,000. A discount rate of 9% is appropriate for both projects.
Compute the net present value and profitability index of each project. Which project should be accepted?