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Explain capital evaluation methods strengths and weaknesses

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Reference no: EM131161099

Managerial Accounting Week 5 DQ

Capital Investment Evaluation

Select one of the capital investment evaluation methods describedt. Fully explain the capital evaluation method's strengths and weaknesses. Take a position and defend the use of your selected method. Be sure to use at least two scholarly sources to support your position. Your initial post should be 200-250 words.
Ranking Investment Alternatives

Grosvenor Industries has designated $1.2 million for capital investment expenditures during the upcoming year. Its cost of capital is 14 percent. Any unused funds will earn the cost of capital rate. The following investment opportunities along with their required investment and estimated net present values have been identified:

Project

Net Investment

NPV

Project

Net Investment

NPV

A

$200,000

$22,000

F

$250,000.00

$30,000.00

B

$275,000

$21,000

G

$100,000.00

$7,000.00

C

$150,000

$6,000

H

$200,000.00

$18,000.00

D

$190,000

-$19,000

I

$210,000.00

$4,000.00

E

$500,000

$40,000

J

$250,000.00

$35,000.00

In your response, complete the following:

• Rank the projects using the profitability index. Considering the limit on funds available, which projects should be accepted?

• Using the NPV, which projects should be accepted, considering the limit on funds available?

• If the available investment funds are reduced to only $1,000,000:

o Does the list of accepted projects change from Part 2?
o What is the opportunity cost of the eliminated $200,000?

Reference no: EM131161099

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