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What is the net present value and the profitability index for Sunshine Corporation?

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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 . . . . . . . $24,000 $44,000 $15,000 $30,000 $50,000
net cash inflows . . . . . . 20,000 40,000 16,000 24,000 41,000
Investment cost

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?
3. What would be the ranking of the acceptable projects according to the profitability indexes?
4. Interpretive Question: What additional information would be needed to screen and rank the
projects using the internal rate of return method? What are the decision rules using the IRR
method for screening and ranking capital budgeting projects?

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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

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