Exercise 24-10 NPV and profitability index LO P3 Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% 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 A $(172,325) Project B $(155,960) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 Year 4 Year 5 46,000 43,000 91, 295 89,400 74,000 36,000 53,000 52,000 69,000 21,000 a. For each alternative project compute the net present value. b. For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the net present value. Project A Initial Investment $ 172,325 Chart Values are Based on: 0/ For each alternative project compute the net present value. Project A Initial Investment 172,325 Chart Values are Based on: i = % Year Cash Inflow PV Factor = Present Value 1 0.9434 X = 36,793 X 2 36,000 X X 53,000 X X 87,295 x 0.8900 X 41,170 X 3 0.8396 X 73,293 4 93,400 X 0.7921 X 73,982 5 68,000 X X 0.7473 X = 50,816 $ 276,054 Present value of cash inflows $ 276,054 Present value of cash outflows 172,325 Net present value $ 109,729 X Project B Initial Investment $ 155,960 Year Cash Inflow x PV Factor = Present Value 1 0.9434 X = 31, 132 X 33,000 X X 58,000 X X 2 0.8900 = 51,620 3 62.000 X 0.8396 = 52,055 Project B Initial Investment $ 155,960 Year Cash Inflow PV Factor = Present Value 1 33,000 0.9434 31,132 X 2 58,000 0.8900 = 51,620 3 0.8396 = 52,055 4 62,000 X 78,000 x x 28,000 X X 0.7921 = 61,784 01 0.7473 = 20,924 $ 217,515 Present value of cash inflows 217,515 Present value of cash outflows 155,960 Net present value $ 70,556 Required A Required B > X Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the profitability index. If the company can only select one project, which should it choose? II Profitability Index Choose Choose Numerator: Profitability Denominator: Index Present value of net cash 1 Profitability Initial investment flows index Project 282,054 X 1 $ 172,325 1.64 Project $ 217,516 X 1 $ B 146,960 x 1.48 If the company can only select one project, which should it choose? Project A II II Required A Required B
