Explore BrainMass

Explore BrainMass

    Net present value and the profitability index

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Screening and Ranking Alternatives

    Sunshine Corporation is considering several long-term investments. Management wants to accept the two best projects, given the following data:

    Project

    A B C D E

    Present value of

    net cash inflows . . . . . . . . $24,000 $44,000 $15,000 $30,000 $50,000

    Investment cost . . . . . . .. . 20,000 40,000 16,000 24,000 41,000

    Required:

    1. Determine the net present value and the profitability index for each project.

    2. Which projects are acceptable using the profitability index as a screening tool?

    Should We Purchase That New Copier? Campus Print Shop is thinking of purchasing a new, modern copier that automatically collates pages. The machine would cost $22,000 cash. A service contract on the machine, considered a must because of its complexity, would be an additional $200 per month. The machine is expected to last eight years and have a resale value of $4,000. By purchasing the new machine, Campus would save $450 per month in labor costs and $100 per month in materials costs due to increased efficiency. Other operating costs are expected to remain the same. The old copier would be sold for its scrap value of $1,000.

    Campus requires a return of 14% on its capital investments.
    1. As a consultant to Campus, compute:
    a. The payback period

    © BrainMass Inc. brainmass.com June 3, 2020, 6:44 pm ad1c9bdddf
    https://brainmass.com/economics/contracts/73030

    Solution Preview

    Screening and Ranking Alternatives

    Sunshine Corporation is considering several long-term investments. Management wants to accept the two best projects, given the following data:

    Project

    A B C D E

    Present value of ...

    Solution Summary

    This discusses the steps to compute the net present value and the profitability index for each project

    $2.19

    ADVERTISEMENT