A Company Has a Decision to Make Between Two Investment

question 31

Essay

A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below:
$$\begin{array} { l rr } &\underline{\text { Investment Y}} & \underline{\text { Investment Z}} \\\text {Projected after-tax net income}&\$ 40,000&\$ 43,000\\\text {Investment costs}&\$ 600,000&\$ 672,000\\\text {Estimated life}&6 \text { years }&6 \text { years }\end{array}$$
The present value of an annuity for six years at 10% is 4.3553.This company uses straight-line depreciation.
Required:
a.Calculate the net present value for each investment.
b.Calculate the profitability index for each investment.
c.Which investment should this company select? Explain.

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Definitions:

Foreshortening

A technique used in visual art to create the illusion of an object receding strongly into the background or coming forward in space.

Chiaroscuro

In drawing or painting, the treatment and use of light and dark, especially the gradations of light that produce the effect of modeling.

Contrapposto

An artistic technique where a figure stands with most of its weight on one foot, creating a slight s-curve in the body's stance, adding dynamism and realism.

Italo-Byzantine

A style of art that combines elements of both Italian and Byzantine influences, characterized by its emphasis on religious iconography and mosaic work.