Following is information on two alternative investments being considered by Tiger Co. The company requires a 4%

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Following is information on two alternative investments being considered by Tiger Co. The company requires a 4% return from its investments.

             ____________________________________Project X1 __________Project X2

Initial investment . . . . . . . . . . . . . . . . . . . . . . ($80,000) ................. ($120,000)

Expected net cash flows in year:

1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 ..................... 60,000

2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,500 ..................... 50,000

3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,500 ..................... 40,000

Compute each project's

(a) Net present value and

(b) Profitability index. (Round present value calculations to the nearest dollar and round the profitability index to two decimal places.) If the company can choose only one project, which should it choose? Explain.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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Managerial Accounting

ISBN: 978-0078025600

5th edition

Authors: John Wild, Ken Shaw

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