Problem 3

Shilling Company is evaluating two different capital investments, Project X and Y. Either X or Y would cost

$210,000, and the company cannot afford to do both. The company expects that Project X would provide net

cash inflows of $62,000 per year for 5 years. For Project Y, the net cash inflows are expected to be as follows:

Shillings cost of capital is 10%.

Required:

1) Calculate the present value index for Project X and for Project Y. Round your answer to three decimal

places.

Project X _________________

Project Y _________________

2) Indicate whether each of the projects is an acceptable investment.

Project X _________________

Project Y _________________

3) Based on present value index, which of the two projects should Shilling implement?