FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Citco Company is considering investing up to $500,000 in a sustainability-enhancing project. Its managers have narrowed their choices to three potential projects.
- Project A would redesign the production process to recycle raw materials waste back into the production cycle, saving on direct materials costs and reducing the amount of waste sent to the landfill.
- Project B would remodel an office building, utilizing solar panels and natural materials to create a more energy-efficient and healthy work environment.
- Project C would build a new training center in an underserved community, providing jobs and economic security for the local community.
Required:
1. Assuming the cost of capital is 12%, complete the table below by computing the payback period,
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(Redesign
production
process)
(Remodel office
building)
(New training
facility)
Required investment
(500,000)
(420,000)
(320,000)
Annual cost savings
100,000
60,000
80,000
8 years
10 years
6 years
Project life
%24
80,000
75,000
30,000
Salvage value
5 years
7 years
4 years
Payback period
NPV @12%
Profitability index @12%
Internal rate of return
商
2. Based strictly on the economic analysis, in which project should they invest?
O Project A
O Project B
%24
%24
%24
%24
%24
%24
%24
%24
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