Exercise 25-10 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, FV of $1, PVA of $1 and FVA of $1). (Use appropriate factor(s) from the tables provided.)

	Project A					Project B
Initial investment		$	(186,325	)			$	(145,960	)
Expected net cash flows in year:
1			36,000					44,000
2			52,000					61,000
3			75,295					60,000
4			93,400					82,000
5			62,000					24,000

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?

Project A
Initial Investment		$186,325
Chart Values are Based on:
i =
Year	Cash Inflow	x	PV Factor	=	Present Value
1				=
2				=
3				=
4				=
5				=
Project B
Initial Investment		$145,960
Year	Cash Inflow	x	PV Factor	=	Present Value
1				=
2				=
3				=
4				=
5				=

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
Project B
If the company can only select one project, which should it choose?