# Managerial Accounting: BE12-5 Orkin Company is considering two different

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?

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?

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