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 8% return from its investments. (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 Year 4 Year 5 Project A $(189,325) Project B $(147,960) 55,000 33,000 50,000 52,000 74,295 61,000 85,400 72,000 56,000 29,000 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? Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the net present value. Initial Investment Chart Values are Based on: Project A $ 189,325 % Year Cash Inflow X PV Factor Present Value, 1 2 3 4 5 Required A Required B For each alternative project compute the net present value. Initial Investment Chart Values are Based on: Project A 189,325 % Year Cash Inflow X PV Factor Present Value 1 2 3 = 4 5 Project B Initial Investment $ 147,960 Year Cash Inflow. X PV Factor 1 2 3 4 5 = = Present Value Year Cash Inflow X PV Factor Present Value 1 = 2 = 3 4 5 1 2 3 4 Present value of cash inflows Present value of cash outflows Net present value 5 I = = = Present Value Required A Required B > its investments. (PV of $1. FV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 Year 4 Year 5 Project A $(189,325) Project B $(147,960) 55,000 33,000 50,000 52,000 74,295 61,000 85,400 72,000 56,000 29,000 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 choos 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? Profitability Index Choose Numerator: Choose Denominator: Profitability Index Profitability index Project A 0 Project B 0 If the company can only select one project, which should it choose? TABLE B.1 Present Value of 1 p=1/(1+i)" Rate Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 15% 1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.8929 0.8696 2 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.7972 0.7561 3 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7118 0.6575 4 0.9610 0.9238 0.8885 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6355 0.5718 5 0.9515 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 6 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 7 0.9327 0.8706 0.8131 0.7599 0.7107 0.6651 0.6227 0.5835 0.6499 0.5645 0.5963 0.5470 0.5132 0.4523 0.5674 0.6209 0.4972 0.5066 0.4323 0.3759 8 0.9235 0.8535 0.7894 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4039 0.3269 9 0.9143 0.8368 0.7664 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3606 0.2843 10 0.8203 0.9053 0.7441 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3220 0.2472 11 0.8963 0.8043 0.7224 0.6496 0.5847 0.5268 0.4751 0.3505 0.3875 0.4289 0.2875 0.2149 12 0.8874 0.7885 0.7014 0.6246 0.5568 0.4970 0.4440 0.3971 0.3555 13 0.8787 0.7730 0.6810 0.6006 0.5303 0.4688 0.4150 0.3677 14 0.8700 0.7579 0.6611 0.5775 0.5051 0.4423 0.3878 0.3262 0.3405 0.2992 0.2633 0.3186 0.2897 0.2567 0.1869 0.2292 0.1625 0.2046 0.1413 15 0.8613 0.7430 0.6419 0.5553 0.4810 0.4173 0.3624 0.3152 0.2745 0.2394 0.1827 0.1229 16 0.8528 0.7284 0.6232 0.5339 0.4581 0.3936 0.3387 0.2919 0.2519 0.2176 0.16311 0.1069 17 0.8444 0.7142 0.6050 0.5134 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978 0.1456 0.0929 18 0.8360 0.7002 0.5874 0.4936 0.4155 0.3503 0.2959 0.2502 0.2120 0.1799 0.1300 0.0808 19 0.8277 0.6864 0.5703 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 0.1161 0.0703 20 0.8195 0.6730 0.5537 0.4564 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486 0.1037 0.0611 25 0.7798 0.6095 0.4776 0.3751 0.2953 0.2330 0.1842 0.1460 0.1160 0.0923 0.0588 0.0304 30 0.7419 0.5521 0.4120 0.3083 0.2314 0.1741 0.1314 0.0994 0.0754 0.0573 0.0334 0.0151 35 0.7059 0.5000 0.3554 40 0.6717 0.4529 0.3066 0.2534 0.1813 0.2083 0.1420 0.1301 0.0937 0.0676 0.0490 0.0356 0.0189 0.0075 0.0972 0.0668 0.0460 0.0318 0.0221 0.0107 0.0037 "Used to compute the present value of a known future amount. For example: How much would you need to invest today at 10% compounded semiannually to accumulate $5,000 in 6 years from today? Using the factors of a 12 and 5% (12 semiannual periods and a semiannual rate of 5%), the factor is 0.5568. You would need to invest $2,784 today ($5000 x 0.5568) TABLE B.2 Future Value of 1 f=(1+i)" Rate Porlods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 15% 0 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1 1.0100 1.0200 1.0300 1.0400 1.0500 1.0600 1.0700 1.0800 1.0900 1.1000 1.1200 1.1500 2 1.0201 1.0404 1.0609 1.0816 1.1025 1.1236 1.1449 1.1664 1.1881 1,2100 1.2544 1.3225 3 1.0303 1.0612 1.0927 1.1249 1.1576 1.1910 1.2250 1.2597 1.2950 1.3310 1.4049 1.5209 4 1.0406 1.0824 1.1255 1.1699 1.2155 1.2625 1.3108 1.3605 1.4116 1.4641 1.5735 1.7490 5 1.0510 1.1041 1.1593 1.2167 1.2763 1.3382 1.4026 1.4693 1.5386 1.6105 1.7623 2.0114 6 1.0615 1.1262 1.1941 1.2653 1.3401 1.4185 1.5007 1.5869 1.6771 1.7716 1.9738 2.3131 7 1.0721 1.1487 1.2299 1.3159 1.4071 1.5036 1.6058 1.7138 1.8280 1.9487 2.2107 2.6600 8 1.0829 1.1717 1.2668 1.3686 1.4775 1.5938 1.7182 1.8509 1.9926 2.1436 2.4760 3.0590 9 1.0937 1.1951 1.3048 1.4233 1.5513 1.6895 1.8385 1.9990 2.1719 2.3579 2.7731 3.5179 10 1.1046 1.2190 1.3439 1.4802 1.6289 1.7908 1.9672 2.1589 2.3674 2.5937 3.1058 4.0456 11 1.1157 1.2434 1.3842 1.5395 1.7103 1.8983 2.1049 2.3316 2.5804 2.8531 3.4785 4.6524 12 1.1268 1.2682 1.4258 1.6010 1.7959 2.0122 2.2522 2.5182 2.8127 3.1384 3.8960 5.3503 13 1.1381 1.2936 1.4685 1.6651 1.8856 2.1329 2.4098 2.7196 3.0658 3.4523 4.3635 6.1528 14 1.1495 1.3195 1.5126 1,7317 1.9799 2.2609 2.5785 2.9372 3.3417 3.7975 4.88711 7.0757 15 1.1610 1.3459 1.5580 1.8009 2.0789 2.3966 2.7590 3.1722 3.6425 4.1772 5.4736 8.1371 16 1.1726 1.3728 1.6047 1.8730 2.1829 2.5404 17. 1.1843 1,4002 1.6528 1.9479 2.2920 2.6928 18 1.1961 19 1.2081 1.4568 1.4282 1.7024 1.7535 2.0258 2.4066 2.8543 3.3799 2.1068 2.5270 3.0256 3.6165 2.9522 3.1588 3.7000 3.9960 4.3157 3.4259 20 25 30 35 40 1.4889 2.2080 1.2824 1.6406 2.0938 1.3478 1.8114 2.4273 1.4166 1.9999 2.8139 3.2620 1.2202 1.4859 1.8061 2.1911 2.6533 2.6658 3.3864 4.2919 3.2434 4.3219 5.7435 3.9461 5.5160 7.6861 4.8010 7.0400 10.2857 3.2071 3.9703) 4.5950 6.1304 4.3276 5.0545 6.8660 4.7171 5.5599 5.1417 6.1159 8.6128 3.8697 4.6610 5.6044 6.7275 9.6463 5.4274 6.8485 8.6231 7.6123 10.0627 13.2677 10.6766 14.7853 20.4140 14.9745 21.7245 31.4094 9.3576 10.7613 7.6900 12.3755 14.2318 16.3665 10.8347 17.4494 17.0001 32.9190 29.9599 66.2118 28.1024 45.2593 52.7996) 133.1755 93.0510 267.8635 "Used to compute the future value of a known present amount. For example: What is the accumulated value of $3,000 invested today at 8% compounded quarterly for 5 years? Using the factors of a-20 and i-2% (20 quarterly periods and a quarterly interest rate of 2%), the factor is 1.4859. The accumulated value is $4,457.70 (53.000 x 1.4859) P = 1 (1+i)") TABLE B.3 Present Value of an Annuity of 1 Rate Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 15% 1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 9 8.5660 8.1622 7.7861 7.4353 7.1078 10 9.4713 8.9826 8.5302 8.1109 7.7217 6.8017 7.3601 11 10.3676 9.7868 9.2526 8.7605 8.3064 12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 16 14.7179 13.5777 12.5611 11.6523 10.8378 17 15.5623 14.2919 13.1661 12.1657 11.2741 18 16.3983 14.9920 13.7535 12.6593 19 20 25 30 35 40 32.8347 27.3555 1.7833 2.5771 3.3872 3.3121 3.2397 3.1699 3.0373 2.8550 4.1002 3.9927 3.8897 3.7908 3.6048 3.3522 4.7665 4.6229 4.4859 4.3553 4.1114 3.7845 5.3893 5.2064 5.0330 4.8684 4.5638 4.1604 59713 5.7466 5.5348 5.3349 4.9676 4.4873 6.5152 6.2469 5.9952 5.7590 5.3282 4.7716 7,0236 6.7101 6.4177 6.1446 5.6502 5.0188 7.8869 7.4987 7.1390 6.8052 6.4951 5.9377 5.2337 7.1607 6.8137 6.1944 54206 7.1034 6.4235 5.5831 7.3667 6.6282 5.7245 8.0607 7.6061 6.8109 5.84741 10.1059 9.4466 8.8514 8.3126 7.8237 6.9740 5.9542 10.4773 9.7632 9.1216 8.5436 8.0216 7.1196 6.0472 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014 7,2497 6.1280 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649 7.3658 6.1982 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136 7.4694 6.2593 22.0232 19.5235 17.4131 15.6221 14.0939 12.78341 11.6536 10.6748 9.8226 9.0770 7.8431 6.4641 25.8077 22.3965 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 10.2737 9.4269 8.0552 6.5660 29.4086 24.9986 21.4872 18.6646 16.3742 14.4982 12.9477 11.6546 10.5668 9.6442 8.1755 6.6166 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246 10.7574 9.7791 8.2438 6.6418 1.8080 2.6243 0.9174 0.9091 0.8929 0.8696 1.7591 1.7355 1.6901 1.6257 2.5313 2.4869 2.4018 2.2832 7.9427 7.5361 8.3577 7.9038 7.4869 8.7455 8.2442 7.7862 9.1079 8.5595 Used to calculate the present value of a series of equal payments made at the end of each period. For example: What is the present value of $2,000 per year for 10 years assuming an annual interest rate of 9%7 For (e 10, -9%), the PV is 64177 $2,000 per year for 10 years is the equivalent of $12,835 today ($2000 x 64177) f= [(1+i)-1]/i TABLE B.4' Future Value of an Annuity of 1 Rate Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 15% 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1,0000 2 2.0100 2.0200 2.0300 2.0400 2.0500 2.0600 2.0700 2.0800 2.0900 2.1000 2.1200 2.1500 3 3.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3,2464 3.2781 3.3100 3.3744 3.4725 4 4.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 4.5061 4.5731 4.6410 4.7793 4.9934 5 5.1010 5.2040 5.3091 5.4163 5.5256 5.6371 5.7507 5.8666 5.9847 6.1051 6.3528 6.7424 6 6.1520 6.3081 6.4684 6.6330 6.8019 6.9753 7.1533 7.3359 7.5233 7.7156 8.1152 8.7537 7 7.2135 7.4343 7.6625 7.8983 8.1420 8.3938 8.6540 8.9228 9.2004 9.4872 10.0890 11.0668 8 8.2857 8.5830 8.8923 9.2142 9.5491 9.8975 10.2598 10.6366 11.0285 11.4359 12.2997 13.7268 9 9.3685 9.7546 10,1591 10.5828 11.0266 11.4913 11.9780 12.4876 13.0210 13.5795 14.7757 16.7858 10 10.4622 10.9497 11.4639 12.0061 12.5779 13.1808 13.8164 14.4866 15.1929 15.9374 17.5487 20.3037 11 11.5668 12.1687 12.8078 13.4864 14.2068 14.9716 15.7836 16.6455 17.5603 18.5312 20.6546 24.3493 12 12.6825 13.4121 14.1920 15.0258 15.9171 16.8699 17.8885 18.9771 20.1407 21.3843 24.1331 29.0017 13. 13.8093 14.6803 15.6178 16.6268 17.7130 18.8821 20.1406 21.4953 22.9534 24.5227 28.0291 34.3519 14 14.9474 15.9739 17.0863 18.2919 19.5986 21.0151 22.5505 24.2149 26.0192 27.9750 32.3926 40.5047 15 16 17 ERKNING 16.0969 17.2934 18.5989 20.0236 21.5786 23.2760 25.1290 27.1521 29.3609 31.7725 37.2797 47.5804 17.2579 18.6393 20.1569 21.8245 23.6575 27.8881 25.6725 30.3243 33.0034 35.9497 42.7533 55.7175 18.4304 20.0121 21.7616 23.6975 25.8404 28.2129 30.8402 36.9737 33.7502 40.5447 48.8837 65.0751 18 19.6147 21.4123 23.4144 25.6454 28.1324 30.9057 33.9990 19 20.8109 22.8406 25.1169 27.6712 30.5390 33.7600 20 22.0190 24.2974 26.8704 29.7781 33.0660 25 28.2432 32.0303 36.4593 41.6459 47.7271 36.7856 54.8645 30 34.7849 40.5681 47.5754 56.0849 66.4388 79.0582 35 41.6603 49.9945 60.4621 73.6522 90.3203 111.4348 40 48.8864 60.4020 75.4013 95.0255 120.7998 154.7620 199.6351 37.4502 41.4463 37.3790 40.9955 45.7620 63.2490 73.1059 113.2832 94.4608 172.3168 138.2369 259.0565 41.3013 45.5992 55.7497 75.8364 46.0185 51.1591 63.4397 51.1601 57.2750 98.3471 133.3339 84.7009 136.3075 164.4940 241.3327 215.7108 271.0244 431.6635 337.8824 442.5926 767.0914 88.2118 72.0524 102.4436 212.7930 434.7451 881.1702 1,779.0903 Used to calculate the future value of a series of equal payments made at the end of each period. For example: What is the future value of $4,000 per year for 6 years assuming an annual interest rale 18%? For (6,18%), the FV factor is73359. $4,000 per year for 6 years accumulates to $29,343.40 ($4000 x 7.3350)