Question
11. Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% return from its investments. (PV of
11.
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% 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 Project X2 Initial investment $ (110,000) $ (180,000) Net cash flows in: Year 1 40,000 82,500 Year 2 50,500 72,500 Year 3 75,500 62,500 a. Compute each projects net present value. b. Compute each projects profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index?
Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $138,600. Project 2 requires an initial investment of $107,100. Assume the company requires a 10% rate of return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Annual Amounts | Project 1 | Project 2 |
---|---|---|
Sales of new product | $ 115,200 | $ 91,400 |
Expenses | ||
Materials, labor, and overhead (except depreciation) | 77,350 | 38,080 |
DepreciationMachinery | 19,800 | 21,420 |
Selling, general, and administrative expenses | 9,520 | 23,800 |
Income | $ 8,530 | $ 8,100 |
Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net present values should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar.)
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