Question

Following is information on two alternative investments being considered by Tiger Co. The company requires an 8% 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 X1 $(98,000) Project x2 $(156,000) Initial investment Expected net cash flows in year: 34,000 44,500 69,500 73.500 63,500 53,500 a. Compute each project's net present value. b. Compute each project's profitability index. If the company can choose only one project, which should it choose? Complete this question by entering your answers in the tabs below. Required A Required B Compute each project's net present value. (Round your final answers to the nearest dollar.) Net Cash Flows Present Value of 1 at 8% Present Value of Net Cash Flows Project X1 Year 1 Year 2 Year 3 Totals Amount invested Net present value Project X2 Year 1 Year 2 Year 3 Totals Amount invested Net present value

Answer 1

Answer Present Value of Net Cash Flow a Calculation of Projects Net Present Value Net Cash Present Value Flow of 1 at 8% Project X1 Year 1 $34,000 0.92593 Year 2 $44,500 0.85734 Year 3 $69,500 0.79383 Total $148,000 Amount Invested Net Present Value $31,482 $38,152 $55,171 $124,804 ($98,000) $26,804 Project X2 Year 1 Year 2 Year 3 Total Amount Invested $73,500 $63,500 $53,500 $190,500 0.92593 0.85734 0.79383 $68,056 $54,441 $42,470 $164,967 ($156,000) $8,967 Net Present Value

Profitability Index Numerator Denominator Profitability Index Amount Invested Profitability Index Present Value of Cash Flow $124,804 $164,967 Project x1 Project x2 $98,000 $156,000 1.27 1.06 Project X1 should be selected