Question

Exercise 24-10 NPV and profitability index LO P3 Following is information on two alternative investments being considered by Jolee Company. The company requires a 12% retur from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project A $(180,325) Project B $(145,960) Initial investment Expected net cash flows in year: Hm #on 47,000 57,900 81,295 77,400 69,000 37,000 60,000 49,000 74,000 32,000 a. For each alternative project compute the net present value. b. For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the net present value.

Answer 1

present value of C) computation of het each project to for = Project - A Initial anvestment $180325 year cash flow & pr factor $ 47000 08929 57 000 10.7972 81295 07118 774oo 0.6355 5 69000 present value $41966.3 4544014 5786508 49187.7 39 150.6 $ 233611 $ (180325) $53286 .5674 I Less: -Net Initical investment prest value

= protect -B Infilial anvestment $145960 year cash anflow X PV factor $ 39000 08929 60,000 Lo 7972 49000 0.7118 74000 0.6355 32000 0.5674 dmob present value. $ 330373 47832 34878.2 47027 18156.8 $ 180931 $(145960) $ 3497) Less - Initial anvestment Net present value I

profitability andea, Neemerator Denominador Indese project A $233611 / $180325 = 1.30 project B & 180931 & 145960 = 1.24 If the company can only select one project, which shoceld it choose project-A. Note :- profitability andere = present vakee of futtere eash anfloos. Initial anvestment