A Company Produces Two Boat Models,Montauk and Orient $$\begin{array} { c c } \underline{\text { Year }} & \underline{\text { PV factor of } \$ 1} \\1 & 0.8929 \\2 & 0.7972 \\3 & 0.7118\end{array}$$

question 38

Essay

A company produces two boat models,Montauk and Orient.Both products are being considered for major investment projects next year.Relevant data follow:
$$\begin{array}{l}&\underline{\text{Montauk}}&\underline{\text{Orient}}\\\text{New investment}&\$ 400,000&\$ 300,000\\\text{Expected 3-year net cash flows:}\\\text{Year 1}&150,000&130,000\\\text{Year 2}&160,000&130,000\\\text{Year 3}&170,000&130,000\end{array}$$
$$\begin{array} { c c } \underline{\text { Year }} & \underline{\text { PV factor of } \$ 1} \\1 & 0.8929 \\2 & 0.7972 \\3 & 0.7118\end{array}$$
Required:
a.Calculate the net present value and the profitability index of the Montauk (assuming a discount rate of 12%).
b.Calculate the net present value and the profitability index of the Orient.
c.Which boat should the company acquire and why?

---

Definitions:

Rule Of Thumb

A widely accepted guideline or method based on practical experience rather than theory.

Objective Analysis

The examination and evaluation of facts or evidence in a manner free from personal feelings, interpretations, or prejudice, focused on observable phenomena.

Interpretive Comments

Explanatory remarks that provide insight or clarity on data, findings, or artwork, often revealing deeper meanings or implications.

Shaded Rectangle

A geometric figure that has been filled with color or pattern to differentiate it or highlight an area within it.