Question

Following is information on two alternative investments being considered by Jolee Company. The company requires a 12% return
a. For each alternative project compute the net present value b. For each alternative project compute the profitability index
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Answer #1

a) Project A

-188325 1 -188325
i=12%
42000 0.892857 37500
48000 0.797194 38265.31
89295 0.71178 63558.42
96400 0.635518 61263.94
64000 0.567427 36315.32
NPV 48577.98

Project B

-151960 1 -151960
i=12%
39000 0.892857 34821.43
56000 0.797194 44642.86
58000 0.71178 41283.25
81000 0.635518 51476.96
31000 0.567427 17590.23
NPV 37854.74

Profitablity Index

Project A

Numerator/Denominator= 236903 188325 = 1.2579

Project B

Numerator/Denominator = 189814.74   151960 = 1.2491

Project A Should be selected since it has NPV & PI more than Project B

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