Following is information on two alternative investments being considered by Tiger Co. The company requires a 9% 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 $(101,000) Project x2 $(151,000) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 38,000 48,500 73,500 79,500 69,500 59,500 a. Compute each project's net present value. b. Compute each project's profitability index. If the company can choose only one project, which should it choose? Complete this question by entering your answers in the tabs below. Required A Required B Compute each project's net present value. Net Cash Flows Present Value of 1 at 9% Present Value of Net Cash Flows $ 38,000 Project X1 Year 1 Year 2 Year 3 Totals Amount invested Net present value Project X2 Year 1 $ 38,000 $ 0 $ 0 Complete this question by entering your answers in the tabs below. Required A Required B Compute each project's net present value. Net Cash Present Value Present Value of Flows of 1 at 9% Net Cash Flows $ 38,000 $ 38,000 $ 0 0 Project X1 Year 1 Year 2 Year 3 Totals Amount invested Net present value Project X2 Year 1 Year 2 Year 3 Totals Amount invested Net present value $ 0 $ 0 $ 0 a. A new operating system for an existing machine is expected to cost $684,000 and have a useful life of six years. The system yields an incremental after-tax income of $200,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $60,000. b. A machine costs $480,000, has a $40,000 salvage value, is expected to last eight years, and will generate an after-tax income of $110,000 per year after straight-line depreciation. Assume the company requires a 12% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Complete this question by entering your answers in the tabs below. Required A Required B A new operating system for an existing machine is expected to cost $684,000 and have a useful life of six years. The system yields an incremental after-tax income of $200,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $60,000. (Round your answers to the nearest whole dollar.) Cash Flow Annual cash flow Residual value Amount x PV Factor = Present Value $ 304,000 x $ 0 $ 60,000 x 0 Select Chart Present Value of an Annuity of 1 Present Value of 1 Present value of cash inflows Immediate cash outflows Net present value a. A new operating system for an existing machine is expected to cost $684,000 and have a useful life of six years. The system yields an incremental after-tax income of $200,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $60,000. b. A machine costs $480,000, has a $40,000 salvage value, is expected to last eight years, and will generate an after-tax income of $110,000 per year after straight-line depreciation. Assume the company requires a 12% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Complete this question by entering your answers in the tabs below. Required A Required B ......................................................................................................................................................... A machine costs $480,000, has a $40,000 salvage value, is expected to last eight years, and will generate an after-tax income of $110,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.). Cash Flow Select Chart Amount x PV Factor = Present Value $ Annual cash flow Residual value Net present value Check my work 189,325 PV Factor Present Value Initial Investment $ Chart Values are Based on: i = 10% Year Cash Inflow 1 40,000 x 2 45,000 3 75,295 x 4 82,400 x 5 65,000 X Initial Investment Year Cash Inflow Project B $ 143,960 PV Factor Present Value 2 = 3 4 5 Apecteu HEL LADLIUW 111 Year 1 Year 2 Year 3 Year 4 Year 5 40,000 45,000 75,295 82,400 65,000 38,000 53,000 53,000 70,000 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? 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 Denominator: Choose Numerator: Profitability Index Profitability index Project A 0 Project B 0 If the company can only select one project, which should it choose?
