Problem: NPV Analysis. Dallas Legal Services, Inc., is contemplating the purchase of additional computer hardware equipment and software programming. Financial analysis resulted in the following projections for a three-year planning horizon:
Hardware Software
Cost $500,000 $200,000
PV of expected cash flow @k = 20% $750,000 $500,000
A. Calculate the net present value for each. Which is more desirable according to the NPV criterion?
B. Calculate the profitability index for each. Which is more desirable according to the PI criterion?
C. Under what conditions would either or both investments be undertaken?