Coore Manufacturing has the following two possible projects
Coore Manufacturing has the following two possible projects. The required return is 10 percent
| Year | Project Y | Project Z |
|---|---|---|
| 0 | -$28,900 | -$54,000 |
| 1 | 14,900 | 12,500 |
| 2 | 13,300 | 40,000 |
| 3 | 15,700 | 10.500 |
| 4 | 11,300 | 38.000 |
a. What is the profitability index for each project?
b. What is the NPV for each project?
c. Which, if either of the projects should the company accept?
Homework Answers
rate positively ..
| i | ii | iii | iv=i*iii | v=ii*iii | |||
| Year | Project Y | Project Z | PVIF @ 10% | Present value Y | Present value Z | ||
| 0 | -28900 | -54000 | 1 | (28,900.00) | (54,000.00) | ||
| 1 | 14900 | 12500 | 0.909091 | 13,545.45 | 11,363.64 | ||
| 2 | 13300 | 40000 | 0.826446 | 10,991.74 | 33,057.85 | ||
| 3 | 15700 | 10500 | 0.751315 | 11,795.64 | 7,888.81 | ||
| 4 | 11300 | 38000 | 0.683013 | 7,718.05 | 25,954.51 | ||
| 15,150.88 | 24,264.80 | ||||||
| Ans a) | Profitability index | ||||||
| Project Y | (15150.88+28900)/28900 | 1.52 | year | ||||
| Project Z | (24264.80+54000)/54000 | 1.45 | year | ||||
| Ans b) | NPV | ||||||
| Project Y | 15,150.88 | ||||||
| Project Z | 24,264.80 | ||||||
| Ans c) | Company should accepte Z because it will provide higher NPV | ||||||
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