Question

Year Project Al-$5,000 $0 $2,000 $4,000 $6,000 $8,000 Project B -$10,000 SO $0 $8,000 $16,000 $16,000 Project C-$20,000-$5,000 $0 $0 $0 $60,000

Answer 1

Computation of Net Present Value of Projects @9% Cash flows Present Values PV factor @ Year 9% Project A Project B Project C Project A Project B Project C A B с D AxB AxC AxD 1 1.0000 $ -5,000 $ -10,000 $ -20,000 $ -5,000 $ -10,000 $ -20,000 2 0.9174 $ $ $ -5,000 $ $ $ -4,587 3 0.8417 $ 2,000 $ $ $ 1,683 $ $ 4 0.7722 $ 4,000 $ 8,000 $ $ 3,089 $ 6,177 $ 5 0.7084 $ 6,000 $ 16,000 $ $ 4,251 $ 11,335 $ 6 0.6499 $ 8,000 $ 16,000 $ 60,000 $ 5,199 $ 10,399 $ 38,996 Net Present Values $ 9,222 $ 17,911 $ 14,409 Profitability Index 2.8444 2.7911 1.5860 Nm Based on Profitability Index, Based on Net Present Value, Project A should be chosen Project B should be chosen Computation of Net Present Value of Projects @12% Cash flows Present Values PV factor @ Year 12% Project A Project B Project C Project A Project B Project C A B C D AxB AxC AxD 1 1.0000 $ -5,000 $ -10,000 $ -20,000 $ -5,000 $ -10,000 $ -20,000 2 0.8929 $ $ $ -5,000 $ $ $ -4,464 3 0.7972 $ 2,000 $ $ $ 1,594 $ $ 4 0.7118 $ 4,000 $ 8,000 $ $ 2,847 $ 5,694 $ 5 0.6355 $ 6,000 $ 16,000 $ $ 3,813 $ 10,168 $ 6 0.5674 $ 8,000 $ 16,000 $ 60,000 $ 4,539 $ 9,079 $ 34,046 Net Present Values $ 7,794 $ 14,941 $ 9,581 Profitability Index 2.5588 2.4941 1.3916 ԱԴ ԱԴ ԱԴ ԱԴ ԱԴ ԱԴ Based on Profitability Index, Based on Net Present Value, Project A should be chosen Project B should be chosen Profitabilty Index is considered more accurate as all projects were having different investments

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