Reference no: EM132520891

Capital Investment Decision

• You are a new Financial Analyst Director at a manufacturing conglomerate. You were given the responsibility to recommend, to the company's Board of Directors, which of two projects, A & B, to pursue. The team of financial analysts had to put together in a very short period of time a package for each project with the appropriate calculations; a national lockdown due to a worldwide pandemic was going into effect the next day at 10 pm. The Board was meeting the next morning for only one hour, so even under such unfortunate circumstances, the Chairman felt that it was important to make and record a decision about the projects (any number of members could get ill and unable to return to work after the crisis was over). The Board Chairman also felt that it was important to have projects that were already approved in the pipeline once the company was able to reopen; these were the last two projects under consideration.

• When you were handed the packets with the calculations one hour before the meeting, you discovered that the calculations for Project A have been done using the profitability index, and the calculations for Project B were done using NPV. There was no time to redo the calculations so you had to make the best possible decision with limited information. The index of profitability for Project A was 1.39, and the NPV for Project B was $187,580.00. Project A will require and initial investment of $8,500,000 and Project B $8,100,000.

Question 1: What project will you choose and why? Your explanation must include information about the two methods, strengths and weaknesses, and what impact the methods had on your final decision. Answers that don't discuss the methods will not receive full credit.