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Following is information on two alternative investments being considered by Tiger Co. The company requires a 7% return from its investments. (PV of $1, FV
Following is information on two alternative investments being considered by Tiger Co. The company requires a 7% 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 X1 | Project X2 | |||||||||
Initial investment | $ | (86,000 | ) | $ | (132,000 | ) | ||||
Expected net cash flows in: | ||||||||||
Year 1 | 28,000 | 64,500 | ||||||||
Year 2 | 38,500 | 54,500 | ||||||||
Year 3 | 63,500 | 44,500 | ||||||||
a. Compute each projects net present value. b. Compute each projects profitability index. If the company can choose only one project, which should it choose?
Required A Required B Compute each project's net present value. (Round your final answers to the nearest dollar.) Net Cash Flows Present Value of 1 at 7% Present Value of Net Cash Flows Project X1 Year 1 $ Year 2 28,000 38,500 63,500 130,000 Year 3 Totals $ $ 0 $ 0 Amount invested Net present value Project X2 Year 1 Year 2 $ 64,500 54,500 44,500 $ 163,500 Year 3 Totals $ 0 Amount invested Net present value $ 0 Required A Required B Compute each project's profitability index. If the company can choose only one project, which should it choose? Profitability Index Profitability index Profitability Index Choose Numerator: 1 Choose Denominator: Present value of net cash flows 1 Annual average investment Project X1 Project x2 If the company can choose only one project, which should it choose? 0 0
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