Montana Company Is Evaluating Two Different Capital Investments,Project X and Y.Either

question 69

Essay

Montana Company is evaluating two different capital investments,Project X and Y.Either X or Y would cost $210,000,and the company cannot afford to do both.The company expects that Project X would provide net cash inflows of $62,000 per year for 5 years.For Project Y,the net cash inflows are expected to be as follows:
$\begin{array}{|c|c|}\hline \text { Year } & \text { Cash inflows from Project } Y \\\hline 1 & \$44,000 \\\hline 2 & 48,000 \\\hline 3 & 60,000 \\\hline 4 & 76,000 \\\hline 5 & 80,000 \\\hline \text { Total } &\$ 308,000 \\\hline\end{array}$
Montana's cost of capital is 12%.(PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.)
Required:
1)Calculate the present value index for Project X and for Project Y.Round your answer to three decimal places.
2)Indicate whether each of the projects is an acceptable investment.
3)Based on present value index,which of the two projects should Montana implement?

Understand the concept of a holder in due course and the requirements for becoming one.

Identify and differentiate between personal (contractual) defenses and real defenses in the context of negotiable instruments.

Recognize the effects of unauthorized signatures and forgeries on the negotiation and enforceability of negotiable instruments.

Understand the roles and effects of indorsements, including special, blank, and restrictive indorsements.

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material and labor expenses.

Contribution Margin

The difference between the sales revenue of a product and the variable costs associated with producing it, used to cover fixed costs and contribute to profit.

Variable Costing

An accounting method that only includes variable production costs—costs that change with production volume—in the cost of goods sold.

Fixed Costs

Expenses that do not change with the level of goods or services produced by a business within a certain range of activity.