Problem 12-19 Use of profitability index [LO4] You are asked to evaluate the following two projects for
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Problem 12-19 Use of profitability index [LO4]
| You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 12 percent. UseAppendix Bfor an approximate answer but calculate your final answer using the formula and financial calculator methods. |
| Project X (Videotapes of the Weather Report) ($26,000 Investment) | Project Y (Slow-Motion Replays of Commercials) ($46,000 Investment) | |||||||
| Year | Cash Flow | Year | Cash Flow | |||||
| 1 | $ | 13,000 | 1 | $ | 23,000 | |||
| 2 | 11,000 | 2 | 16,000 | |||||
| 3 | 12,000 | 3 | 17,000 | |||||
| 4 | 11,600 | 4 | 19,000 |
| a. | Calculate the profitability index for project X.(Do not round intermediate calculations and round your answer to 2 decimal places.) |
| Profitability index |
| b. | Calculate the profitability index for project Y.(Do not round intermediate calculations and round your answer to 2 decimal places.) |
| Profitability index |
| c. | Which project would you select? | ||
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