(A) compute the profitability index for each project.(B) based on the profitability index, which project should the company select? Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $500,000 and has a present value ofall its cash flows of $2,300,000. Project 2 requires an initial investment of $4 million and has a present value of all its cash flows of $7million.(a) Compute the profitability index for each project.(b) Based on the profitability index, which project should the company select?Complete this question by entering your answers in the tabs below.Required A Required BCompute the profitability index for each project.re to searchProject 1Project 2Numerator:OIProfitability IndexBP11Required ADenominator:< PrevRequired B8 of 16 #DELL==>Profitability IndexProfitability indexNext >00W91°F ^x live projects. Project 1 requires an initial investment of $500,000 and has a prall its cash flows of $2,300,000. Project 2 requires an initial investment of $4 million and has a present value of all its casmillion.(a) Compute the profitability index for each project.(b) Based on the profitability index, which project should the company select?to searchComplete this question by entering your answers in the tabs below.Required A Required BBased on the profitability index, which project should the company select?Based on the profitability index, which project should the company select?< Required AOIIBP T< PrevFISRequired B8 of 16n‒‒‒‒‒‒7Next >

It's a method of capital Budgeting. It helps us to know whether a project must be accepted or…

Answered: (a) Compute the profitability index for…

(a) Compute the profitability index for each project. (b) Based on the profitability index, which project should the company select?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PB: Markoff Products is considering two competing projects, but only one will be selected. Project A...

See similar textbooks

Related questions

Q: Textra produces parts for a machine manufacturer. Parts go through two departments, Molding and…

A: Departmental Overhead Rate: An expenditure rate that is determined for each department in the…

Q: Indirect labor Other overhead Overhead applied 56,200 17,200 93,000 Comploto this 46,100 49,900…

A: Over-Applied Overhead: A corporation is said to have over-applied overhead when the actual…

Q: The following transactions apply to Walnut Enterprises for Year 1, its first year of operations: 1.…

A: Closing Entries - Closing entries are required to close the temporary accounts after making…

Q: The inventory at June 1 and the costs charged to Work in Process - Department “23” during the month…

A: Comment- Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…

Q: Hess Company's inventory records show the following data for the month of September: Units…

A: Cost of goods sold=Cost of goods available-Ending inventory

Q: and buildings 114 000 Equipment 210 000 Investment (80 000 shares of £1 each in Rhythm Ltd at cost…

A: Ratio Analysis : It is the relationship between the two or more items of the financial statements to…

Q: any uses a job-order costing system and applies manufacturing overhead cost cost of direct materials…

A: Cost of goods sold refers to the concept which computed all the direct expenses involved in the…

Q: Average invested assets increase by $360,000. e. Solano changes its hurdle rate to 16 p

A: The average invested assets show the amount of assets invested in a project. The increase in the…

Q: Journalize the transactions. If an amount box does not require an entry, leave it blank. Feb. 5.…

A: Common Stocks and Preferred Stocks are the modes of raising funds for the Comapny. Common stock…

Q: 2. ABC, Inc. has the following information related to the pension plan. Beginning of the Year 2021…

A: Here discuss about the details of the pension related amortization cost which are incurred for the…

Q: The International Accounting Standards Board’s Conceptual Framework for Financial Reporting defines…

A: In general term, asset is anything which contains economic value and which can be converted into…

Q: Ice Cool produces two different models of air conditioners. The activities, costs, and cost drivers…

A: Activity-based costing is used to distribute the overhead. This method is used to allocate the…

Q: Paragon Properties built a shopping center at a cost of $50M in year 2010. The company started…

Q: Sarah purchases a set of furniture for RM3956.52 and sells it at X ringgit. If the operating…

A: Lets Assume Sales Price is RM X. Profit Margin is 35% on sales, hence it will be 0.35X We know that…

Q: The following selected information is for H55 Corporation: Total assets Total shareholders' equity…

A: Gross profit takes into consideration only direct expenses whereas net profit takes into…

Q: d. $4,299

A: It includes all the same elements as the individual financial statement but in consolidated form.…

Q: What is the total manufacturing cost per unit?

A: Total manufacturing cost refers to those cost of the company which is used to manufacture the…

Q: Record the adjusting entry for interest. 3. Record the repayment of the note and payment of interest…

A: The notes payable is a financial instrument that is issued by the borrower. In this, the borrower…

Q: d) Payables payment period in days e) Number of days inventory on hand 2. Analyse and interpret…

A: Ratio Analysis The purpose pre preparing the Ratio analysis which indicating the strength and…

Q: ABC purchased 80% of the voting shares of XYZ Ltd. on Jan.1.2022 for $669,200. The preferred shares…

A: Here discuss about the details of the percentage of voting shares into the equity section of another…

Q: During the year ended 30 September 2021 Hanlon Plc entered into two lease transactions. On 1 October…

A: Lease is an arrangement wherein, in exchange for one or more payments, a lessor agrees to grant a…

Q: The following balances were obtained from the books of Tim Curry plc as at December 31,…

A: An income statement is a financial report that indicates the revenue and expenses of a business. It…

Q: Rotorua Products, Limited, of New Zealand markets agricultural products for the burgeoning Asian…

A: Trend analysis is one of the important tool used in decision making. Under this current year figures…

Q: Helmers Corporation manufactures a single product. Variable costing net operating income last year…

A: Given information, ●Variable costing net operating income last year = $91,000 This year=$109,000.…

Q: Which of the following accounts is an owners equity account ? A.Account payable B.Prepaid expenses…

A: Owners Equity Account It is the owners' investment in an asset after all liabilities have been…

Q: Which of the following is not a factory overhead allocation method? a.activity-based costing…

A: Introduction: Various cost allocation methods are used to allocate factory operating costs to units…

Q: Why are budgets so important for all organizations, and what are some advantages and disadvantages…

A: Budget Meaning: Budgeting allows you to plan the finances of your organization. Budgeting is one of…

Q: Sunland Company purchased merchandise inventory with an invoice price of $11500 and credit terms of…

A: The term 2/10, and n/30 state that the purchaser can avail of a discount of 2 percent if he paid the…

Q: Acre is operating at full capacity. Acre sells its product to outside at 100 per unit with VC of 60…

A: Corporate profit will effect if our supplier's price is higher compare to other supplier then our…

Q: Exercise 17-3 (Algo) Computing plantwide overhead rate LO P1 Dade Metals manufactures patio…

A: Introduction: A company's plantwide overhead rate is indeed a single overhead rate used to allocate…

Q: d. Margin Calculation (Net Margin amount pp = Add PP net costs and margin to get - Final Net Selling…

A: In the context of the given question, we are required to compute the margin and retail travel agent…

Q: Required information [The following information applies to the questions displayed below.] At the…

A: A material requisition form outlines the goods that must be taken out of stock and utilized in a…

Q: At the end of June, the job cost sheets at Ace Roofers show the following costs accumulated on three…

A: Solution: Finished goods inventory refers to those inventory items which has been finished all its…

Q: Prepare the Statement of Financial Position as of 31 December 2019, for TT Resources Berhad. Account…

A: Balance sheet is also known as the statement of financial position. It shows the assets, liabilities…

Q: he following is an extract from the trial balance of Tempo Ltd on 30 June 2022: £ Land and buildings…

A: It is the analysis of a company's performance under different dimensions such as profitability,…

Q: special itemized deductions from gross income?

A: Special itemized deductions includes real estate tax , sales tax , mortgage interest , property tax.…

Q: on On the Schedule of Cost of Goods Manufactured, the final Cost of Goods Manufactured figure…

A: A.the amount of cost transferred from Finished Goods to Cost of Goods Sold during the period. Its…

Q: What purpose is served by preparing a trial balance in the accounting cycle?

A: Trial Balance: it is the statement of account balance which is prepared from closing balances of the…

Q: Dr. Gulakowicz is an orthodontist. She estimates that adding two new chairs will increase fixed…

A: The Break-even point indicates the level of sales where the total cost is equal to total sales. It…

Q: (a) Calculate the selling price of the study courses if the number of study courses sold and the…

A: Pricing Decisions are very crucial for any Business Entity as these decisions directly affect the…

Q: On June 10, Sunland Company purchased $7,800 of merchandise from Blossom Company, terms 4/10, n/30.…

A: Solution: The problem relates to prepare journal entry in the books of seller. To record a sales on…

Q: 6. The Fixed and variable costs are costs classification according to: A) Cost traceability B)…

A: Fixed cost refers to the costs which remain fixed or constant with the increase or decrease in the…

Q: A machine was purchased on 1 January 2021 and the other details of the machine are:-…

A: Business organizations are required to charge the depreciation expense in their accounting books so…

Q: The total factory overhead for Landen Company is budgeted for the year at $675,000. Landen…

A: Introduction: An overhead rate applies to direct costs associated with production in order to spread…

Q: Factory overhead: Total factory overhead Total manufacturing costs incurred during March Total…

A: Cost of goods manufactured shows total manufacturing costs incurred on products. It includes…

Q: Daenerys Targaryen is the CEO of Snow Dragon, Inc., a wholesaler of environmentally friendly dragon…

A: Lets understand the basics. In allowance method, company estimate some percentage of account…

Q: What is the cost of investment that will be used in the goodwill calculation in the consolidated…

A: The difference between the amount of consideration transferred to acquiree from acquirer and net…

Q: You are a Toronto based tour operator with a series of flights starting up from Vancouver to Montego…

A: Costing involves analyzing the expenditure incurred in manufacturing an item or rendering a service.…

Q: Bruno has incurred the following costs in relation to a unit of inventory: £ Raw material cost 1.50…

A: Inventory costs are the costs a company incurs when it keeps stock or has money held up in…

Q: Sam Ple, auditor, has decided to rely on an audit client’s debtors. Sam Ple plans to use sampling…

A: Introduction: An auditor verifies the accuracy of business transactions that have been documented.…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

(A) compute the profitability index for each project. (B) based on the profitability index, which project should the company select?

Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $500,000 and has a present value of
all its cash flows of $2,300,000. Project 2 requires an initial investment of $4 million and has a present value of all its cash flows of $7
million.
(a) Compute the profitability index for each project.
(b) Based on the profitability index, which project should the company select?
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the profitability index for each project.
re to search
Project 1
Project 2
Numerator:
O
I
Profitability Index
BP
1
1
Required A
Denominator:
< Prev
Required B
8 of 16 #
DELL
=
=
>
Profitability Index
Profitability index
Next >
0
0
W
91°F ^x

live projects. Project 1 requires an initial investment of $500,000 and has a pr
all its cash flows of $2,300,000. Project 2 requires an initial investment of $4 million and has a present value of all its cas
million.
(a) Compute the profitability index for each project.
(b) Based on the profitability index, which project should the company select?
to search
Complete this question by entering your answers in the tabs below.
Required A Required B
Based on the profitability index, which project should the company select?
Based on the profitability index, which project should the company select?
< Required A
O
II
BP T
< Prev
FIS
Required B
8 of 16
n
‒‒‒
‒‒‒
7
Next >

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Profitability Index

VIEW

Solution Required A

VIEW

Solution: Required B

VIEW

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the computed amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value table appearing in Exhibit 2 of this chapter. 5. Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 700,000. Use the present value tables appearing in Exhibits 2 and 5 of this chapter. b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 500,000, 700,000, and 900,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar. d. Interpret the results of parts (a), (b), and (c).