Question

The Whenworth Corporation is trying to choose between the following two mutually exclusive design projects: Year O Cash Flow (1) Cash Flow (11) $84,000 -$29,800 30,600 10,500 36,900 17,400 43,700 15,600 3 a-1. If the required return is 11 percent, what is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) a-2. If the required return is 11 percent and the company applies the profitability index decision rule, which project should the firm accept? b-1. If the required return is 11 percent, what is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. If the company applies the NPV decision rule, which project should it take? a-1. Project Project 11 a-2. Project acceptance b-1. Project Project II b-2. Project acceptance

Answer 1

Year CF0 C FU) Year ICFO 1CF(II) 0 $(84,000.00) $(29,800.00)| 0 | -84000 1-29800 1 $ 30,600.00 $ 10,500.00 1 130600 10500 2 $ 36,900.00 $ 17,400.00 36900 17400 3 $ 43,700.00 $ 15,600.00 3 43700 I 15600 PL 1.065 1.174 PL =NPV(11%,B3:B5)/-B2 ]=NPV(11%,C3:C5)-C2 NPV $5,469.50 $5,188.28 NPV =NPV(11%,B3:B5)+B2 =NPV(11%,C3:05)+C2 2