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Exercise 11-10 (Algo) Net present value, unequal cash flows, and profitability index LO P3 Following is information on two alternative investment projects being considered
Exercise 11-10 (Algo) Net present value, unequal cash flows, and profitability index LO P3 Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 7% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Initial investment Net cash flows in: Project X1 $ (86,000) Project X2 $ (132,000) Year 1 28,000 64,500 Year 2 Year 3 38,500 54,500 63,500 44,500 a. Compute each project's net present value. b. Compute each project's profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index? Compute each project's net present value. Note: Round your final answers to the nearest dollar. Project X1 Year 1 Year 2 Year 3 Totals Initial investment Net present value Project X2 Year 1 Year 2 Year 3 Totals Initial investment Net present value Net Cash Present Value Present Value of Flows of 1 at 7% Net Cash Flows Required A Required B Required C Compute each project's profitability index. Project X1 Project X2 Profitability Index Numerator: I Denominator: = Profitability Index 1 = Profitability index Required A Required B Required C If the company can choose only one project, which should it choose on the basis of profitability index? If the company can choose only one project, which should it choose on the basis of profitability index?
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