Question - Using NPV and profitability index 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 investments of this nature.
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? Assume neither project has a residual value.
2. What is the maximum acceptable price to pay for each project?
3. What is the profitability index of each project?