Following is information on two alternative investments being considered by Jolee Company. The company requires a...

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Following is information on two alternative investments being considered by Jolee Company. The company requires a 6% return f

Required A Required B For each alternative project compute the net present value. Project A Initial Investment $ 188,325 Char

Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the old machine

1. Detennine the net present value of alterative 1. Initial cash investment (net) Chart values are based on: iar Subsequent Y

business accounting

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Answer 1

Answer #1

			Project A

Initital investment			188,325
Chart values are Based on
i=	6%
Year	Cash	*	PV	=	Present
	inflow		Factor		Value
1	39,000	*	0.9434	=	36793
2	51,000	*	0.89	=	45390
3	82,295	*	0.83962	=	69097
4	93,400	*	0.79209	=	73981
5	61,000	*	0.74726	=	45583
					270843

Present value of cash inflows					270843
present value of cash outflows					188325
Net Present value					82518



			project B

Initital investment			148,960
Chart values are Based on
i=	6%
Year	Cash	*	PV	=	Present
	inflow		Factor		Value
1	26,000	*	0.9434	=	24528
2	57,000	*	0.89	=	50730
3	58,000	*	0.83962	=	48698
4	84,000	*	0.79209	=	66536
5	21,000	*	0.74726	=	15692
					206184

Present value of cash inflows					206184
present value of cash outflows					148960
Net Present value					57224



b)		Profitability Index
	Choose Numerator:				Choose Denominator	=	profitability index
	Present value of net cash flows			/	Initial Investment	=	profitability index
Project A	270843			/	188,325		1.43817
Project B	206184			/	148,960		1.38416
If the company can only select one project , which should it choose?						project A

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