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 $(181,325) Project B $(145,960) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 Year 4 Year 5 54,000 56,000 86,295 80,400 61,000 38,000 47,000 65,000 79,000 34,000 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? X Answer is complete but not entirely correct. Required A Required B For each alternative project compute the net present value. Project A Initial Investment $ 181,325 Chart Values are Based on: i = 8 % Year Cash Inflow 54,000 PV Factor Present Value 50,000 1 0.9259 = 2 56,000 0.8573 3 86,295 0.7938 48,011 68,501 59,094 4 80,400 X 0.7350 = 5 61,000 X 0.6806 41,517 267,123 Present value of cash inflows $ Present value of cash outflows 267,123 181,325 85,798 Net present value $ Project B Initial Investment $ 145,960 PV Factor Year Present Value 1 0.9259 2 0.8573 Cash Inflow 38,000 47,000 65,000 79,000 34,000 3 X 0.7938 = 35,185 40,293 51,597 58,065 23,140 208,280 4 0.7350 5 X 0.6806 $ Present value of cash inflows $ Present value of cash outflows 208,280 145,960 62,320 Net present value $ Required A Required B > 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 Profitability index II Profitability Index Choose Choose Numerator: Denominator: Present value of net cash 11 flows Initial investment Project $ 85,798 X 1 $ 181,325 Project 62,320 X 1 $ B 145,960 If the company can only select one project, which should it choose? 0.47 = 0.43 Project A