Mac Company is considering investing in two different projects, Stout and Boise. The company requests our help analyzing accounting data to ensure it makes the right investment decision.

 Tableau DA 11-3: Mini-Case, Net present value and profitability index LO P3
Mac Company is considering investing in two different projects, Stout and Boise. The company requests our help analyzing accounting data to ensure it makes the right investment decision. The Tableau Dashboard is provided for our analysis. The company requires a 12% return on its investments.

 

Here is the link for the question data

1. Compute the net present value of each project.

2. Based on net present values, which project(s) should the company invest in?

3. Compute the profitability index for each project. If the company can select only one project, which should it choose on the basis of profitability index? 

Explanation
1.
Note: For Stout, students could have also used the present value of annuity (5 periods at 12%)

2.
At the company’s required rate of return of 12%, both Stout and Boise produce a positive NPV. Thus, based on NVP, Mac Company should take on both projects.

3.
If Mac Company can only choose one project, it should select Boise as it has a higher profitability index.

Thanks