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 6% 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 $(187,325) Project B $(141,960) Initial investment Expected net cash flows in year: 1 2 3 40,000 58,000 89, 295 93,400 69,000 30,000 53,000 50,000 69,000 33,000 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? Required A Required B For each alternative project compute the net present value. Project A Initial Investment $ 187,325 Chart Values are Based on: i = 6% Year Cash Inflow PV Factor = Present Value 1 = 40,000 x 58,000 x 2. = 3 II 4 89,295 x 93,400 x 69,000 x = 5 = Initial Investment Project B $ 141,960 PV Factor Year Cash Inflow II Present Value 1 II 2 = 3 = 4 II 5 = 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 / = 0 Project A Project B If the company can only select one project, which should it choose? 0