Question

Following is information on two alternative investments being considered by Jolee Company. The company requires a 12% return 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 Project Initial investment $(188,325) Expected net cash flows in 3(142,960) Year 1 50,00 41,000 Year 2 45,000 45,000 Year 82,295 49,00 Year 4 86,400 69,000 Year 5 68,000 32, eee 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.

Answer 1

B G . 3 5 A B C E H Project A Project A Initital investment= 188325 Initital investment=142960 i=12% i=12% 1 Year Cash flow PVF PV Year Cash flow PVF PV 1 50000 0.8928 44640 1 41000 0.8928 36604.8 2 45000 0.7972 35874 2 45000 0.7972 35874 3 82295 0.7118 58577.58 3 49000 0.7118 34878.2 4 86400 0.6355 54907.2 4 69000 0.6355 43849.5 0 5 68000 0.5674 38583.2 5 32000 0.5674 18156.8 0 Total 232582 Total 169363.3 1 (-) investment -188325 (-) investment -142960 2 NPV 44256.98 NPV 26403.3 3 4 Profitability Index=PV of future cash flows/Initial Investment 5 PV 232582 PV 169363.3 6 investment 188325 investment 142960 7 Index 1.24 Index 1.18 8 9 Looking at the profitability index, Company should choose Project A n