Question

Foowing s omation on two amate investments being consored by Joice company. The company requires a 10% return from its investments VESLEVES PVA Stand EVA Use appropriate factors from the tables provided.) Project $(188,325) Projects St143.960) Expected net cash flows In years 30,000 42.000 75,295 87,400 60.000 32.000 For each atrave project compute the net present value b. For each alternative project compute the profit index. If the company can only select one project, which should Complete this question by entering your answers in the tabs below. Required Required For each alternative project compute the net present value Insa investments 188,325 Year Cash flow X 50

Answer 1

SOLUTION : 1 (A)
	CACLULATION OF THE PRESENT VALUE OF PROJECT A
	Initial investment				$     1,88,325.00
	I=				10%
	Years	Cash Outflow		PV Factor	Present Value (A XB)
	1	$                      51,000.00	X	0.9091	$         46,363.64
	2	$                      42,000.00	X	0.8264	$         34,710.74
	3	$                      75,295.00	X	0.7513	$         56,570.25
	4	$                      87,400.00	X	0.6830	$         59,695.38
	5	$                      60,000.00	X	0.6209	$         37,255.28
	Tota present value of Cash inflow				$     2,34,595.28
	Less: Cash Outflow				$     1,88,325.00
	Net Present Value				$         46,270.28
SOLUTION : 1 (B)
	CACLULATION OF THE PRESENT VALUE OF PROJECT B
	Initial investment				$     1,43,960.00
	I=				10%
	Years	Cash Outflow		PV Factor	Present Value (A XB)
	1	$                      30,000.00	X	0.9091	$         27,272.73
	2	$                      47,000.00	X	0.8264	$         38,842.98
	3	$                      50,000.00	X	0.7513	$         37,565.74
	4	$                      77,000.00	X	0.6830	$         52,592.04
	5	$                      32,000.00	X	0.6209	$         19,869.48
	Tota present value of Cash inflow				$     1,76,142.96
	Less: Cash Outflow				$     1,43,960.00
	Net Present Value				$         32,182.96
SOLUTION : 2 ( Requirement B)
	CALCULATION OF PROFITABLITY INDEX
		Choose numerator	/	Choose Denometer	=	Profitability index
	Project A	$                  2,34,595.28	/	$            1,88,325.00	=	1.25
	Project B	$                  1,76,142.96	/	$            1,43,960.00	=	1.22
	If the company can select only one project , company will select=					Project A