Ans a) 1.43
PROJECT X | ||||
Year | Project Cash Flows (i) | DF@ 12% | DF@ 12% (ii) | PV of Project ( (i) * (ii) ) |
1 | 18000 | 1/((1+12%)^1) | 0.893 | 16,071.43 |
2 | 16000 | 1/((1+12%)^2) | 0.797 | 12,755.10 |
3 | 17000 | 1/((1+12%)^3) | 0.712 | 12,100.26 |
4 | 16600 | 1/((1+12%)^4) | 0.636 | 10,549.60 |
NPV | 51,476.39 | |||
Total of PV of Cash Inflows | 51476.39 | |||
Cash Outflows | 36000 | |||
Profitability Index = | 1.43 | |||
Present value of cash Inflow / Initial Investment (Cash Outflows) | (51476.39 / 36000) |
Ans b) 1.30
PROJECT Y | ||||
Year | Project Cash Flows (i) | DF@ 12% | DF@ 12% (ii) | PV of Project ( (i) * (ii) ) |
1 | 28000 | 1/((1+12%)^1) | 0.893 | 25,000.00 |
2 | 21000 | 1/((1+12%)^2) | 0.797 | 16,741.07 |
3 | 22000 | 1/((1+12%)^3) | 0.712 | 15,659.17 |
4 | 24000 | 1/((1+12%)^4) | 0.636 | 15,252.43 |
NPV | 72,652.67 | |||
Total of PV of Cash Inflows | 72652.67 | |||
Cash Outflows | 56000 | |||
Profitability Index = | 1.30 | |||
Present value of cash Inflow / Initial Investment (Cash Outflows) | (72652.67 / 56000) |
Ans c) Project X is better since it has higher Profitability Index.
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