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Exercise 11-10 NPV and profitability index LO P3 Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% investments. (PV of S1, FV of S1. PVA of S1. and EVA of 50 (Use appropriate factorís) from the tables provided.) return from Initial investment Expected net cash flovs in year Project A NProject B (187,325) (143,960) 46,000 59,000 73,295 80,400 73,000 34,000 43,000 55,000 69,000 23,000 b. For each alternative project compute the profitablity index. Ifthe company can only select one project, which should it choose? Complete this question by entering your answers in the tabs below. Required A Required 8 For each alternative project compute the net present value. Initial Investment $ 187,325 Values are Based on 10% Cash Inflow X PV FactorPresent Value
Required A Required 8 For each alternative project compute the net present value. Initial Investment 187,325 are on: Cash Present Year Present value of cash inflows Present value of cash outflows Net present value Project B Initial Investment 143,960 Year X Factor Present value of cash inflows Present value of cash outflows Net present value Required A Required B
Required A Required B For each alternative project compute the profitability index. If the company can only select o choose? Profitability Index Choose Denominator Profitability Index Choose Numerator of net cashInitial investment Profitabilty flows index Project Project If the company can only select one project, which should it choose? Required A RequiredB>
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Project A $187,325 Initial Investment Chart values are based on 10% Cash Inflow PV Factor Present Value $46,000 0.90 $41,818.6 $59,000 0.8264 $ 48,757.6 $73,295 0.7513 $55,066.53 $ 80,400 0.6830 54,913.2 $73,000 0.6209 45,325.7 Year Present Value Initial Investment $245,881.63 ($ 187,325) $58,556.63 et Present Value Project B Initial Investment Year 143,960 Cash Flows PV Factor Present Value $34,000 0.9091 S30,909.40 $43,000 0.8264 35,535.2 $55,000 0.7513 S41,321.5 $69,000 0.6830 $47,127 $23,000 0.6209 $14,280.7 Present alue Initial Investment Net Present Value $169,173.8 ($143,960) $25,213.8b. Profitability Index Profitability Present Value of Cash Inflows Initial InvestmentIndex $ 187,3251.313 Project 245,881.63 Project 169,173.8 1.175 $143,960 Project A should be selected, on the basis of its NPV and its Profitability Index.

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