Using discounted cash flow models to make capital investment decisions. Use the NPV method to determine whether Kyler Products should invest in the following projects:
Project A: Costs $260,000 and offers seven annual net cash inflows of $57,000. Kyler Products requires an annual return of 16% on projects like A.
Project B: Costs $375,000 and offers 10 annual net cash inflows of $75,000. Kyler Products demands an annual return of 14% on investments of this nature.
Requirements
1. What is the NPV of each project?
2. What is the maximum acceptable price to pay for each project?
3. What is the profitability index of each project?