Question

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Following is information on two alternative investments being considered by Jolee Company. The company requires a 8% return from its Investments. (PV of $1. FV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Project A $(188,325) Project B $(142,960) Initial investment Expected net cash flows in Year 1 Year 2 Year 3 Year 4 Year 5 54,000 53,000 77,295 80,400 57,000 30,000 52,000 53,000 73,000 39,000 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 Project A Ir al Investment $ 188,325 Chart Values are Based on: - Year Cash Info PV Factor- Present Value 2 4 5 Projects

Answer 1

1)

Project A
Initital investment		1,88,325
Chart values are Based on
i=	8%
Year	Cash	*	PV	=	Present
	inflow		Factor		Value
1	54,000	*	0.926	=	50,004.00
2	53,000	*	0.857	=	45,421.00
3	77,295	*	0.794	=	61,372.23
4	80,400	*	0.735	=	59,094.00
5	57,000	*	0.681	=	38,817.00
					2,54,708.23
Present value of cash inflows			2,54,708.23
present value of cash outflows			1,88,325.00
Net Present value				66,383.23
Project B
Initital investment		1,42,960
Chart values are Based on
i=	8%
Year	Cash	*	PV	=	Present
	inflow		Factor		Value
1	30,000	*	0.926	=	27,780.00
2	52,000	*	0.857	=	44,564.00
3	53,000	*	0.794	=	42,082.00
4	73,000	*	0.735	=	53,655.00
5	39,000	*	0.681	=	26,559.00
					1,94,640.00
Present value of cash inflows			1,94,640.00
present value of cash outflows			1,42,960.00
Net Present value				51,680.00

2)

Profitability Index
	Choose Numerator:			Choose Denominator	=	profitability index
	Present value of net cash flows	/	Initial Investment	=	profitability index
Project A	2,54,708.23			/	1,88,325			1.35
Project B	1,94,640.00			/	1,42,960			1.36
If the company can only select one project , which should it choose?	project B