NPV Analysis. The Santa Catalina Passenger Ferry Company is contemplating leasing an additional ferryboat to expand service to Santa Monica or Newport Beach. Financial analysis resulted in the following projections for a 5-year planning horizon:
A. Calculate the net present value for each service. Which is more desirable according to the NPV criterion?
B. Calculate the profitability index for each service. Which is more desirable according to the PI criterion?
C. Under what conditions would either or both of the services be undertaken?

Question

NPV Analysis. The Santa Catalina Passenger Ferry Company is contemplating leasing an additional ferryboat to expand service to Santa Monica or Newport Beach. Financial analysis resulted in the following projections for a 5-year planning horizon:
  A. Calculate the net present value for each service. Which is more desirable according to the NPV criterion?
B. Calculate the profitability index for each service. Which is more desirable according to the PI criterion?
C. Under what conditions would either or both of the services be undertaken?

Quizplus · Accepted Answer

The Answer of NPV Analysis. The Santa Catalina Passenger Ferry Company is contemplating leasing an additional ferryboat to expand service to Santa Monica or Newport Beach. Financial analysis resulted in the following projections for a 5-year planning horizon:
  A. Calculate the net present value for each service. Which is more desirable according to the NPV criterion?
B. Calculate the profitability index for each service. Which is more desirable according to the PI criterion?
C. Under what conditions would either or both of the services be undertaken?