Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Rowan Company is considering two alternative Investment projects. Each requires a $256,000 Initial Investment. Project A is expected to generate net cash flows of $66,000
Rowan Company is considering two alternative Investment projects. Each requires a $256,000 Initial Investment. Project A is expected to generate net cash flows of $66,000 per year over the next six years. Project B is expected to generate net cash flows of $56,000 per year over the next seven years. Management requires an 9% rate of return on Its Investments. (PV of $1, FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Compute each project's net present value. 2. Compute each project's profitability Index. 3. If the company can choose only one project, which should it choose, based on profitability Index? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute each project's net present value. (Do not round intermediate calculations. Round your present value factor to 4 decimals and your final answers to the nearest whole dollar.) Project A Years 1-8 Initial investment Net present value Net Cash Flows x Present Value of Annuity at Present Value of Net 9% Cash Flows 66,000 x 4.4859 = $ 296,069 256,000 $ 40,071 Project B Net Cash Flows x Present Value of Annuity at 9% Present Value of Net Cash Flows Years 1-7 Initial investment Net present value 56,000 X 5.0330 $ 281,848 256,000 $ 25,845 < Required 1 Required 2 > Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute each project's profitability index. (Do not round intermediate values. Enter your answers rounded to the nearest whole dollar.) Project A Project B $ $ Numerator: Present value of net cash flows 296,071 281,845/$ Profitability Index Denominator: Initial investment $ Profitability index 256,000 = 258,000 = 1.16 1.10 < Required 1 Required 3 >
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started