Sarasota Company has hired a consultant to propose a way to increase the companys revenues. The consultant has evaluated two mutually exclusive projects with the following information provided for each:

		Project Turtle			Project Snake
Capital investment		$1,180,000			$700,000
Annual cash flows		195,000			120,000
Estimated useful life		10 years			10 years

Sarasota Company uses a discount rate of 9% to evaluate both projects.

PV table

TABLE 1 Future Value of 1 (n) Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 15%

0 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000

1. 1.04000 1.05000 1.06000 1.07000 1.08000 1.09000 1.10000 1.11000 1.12000 1.15000

2 1.08160 1.10250 1.12360 1.14490 1.16640 1.18810 1.21000 1.23210 1.25440 1.32250

3 1.12486 1.15763 1.19102 1.22504 1.25971 1.29503 1.33100 1.36763 1.40493 1.52088

4 1.16986 1.21551 1.26248 1.31080 1.36049 1.41158 1.46410 1.51807 1.57352 1.74901

5 1.21665 1.27628 1.33823 1.40255 1.46933 1.53862 1.61051 1.68506 1.76234 2.01136

6 1.26532 1.34010 1.41852 1.50073 1.58687 1.67710 1.77156 1.87041 1.97382 2.31306

7 1.31593 1.40710 1.50363 1.60578 1.71382 1.82804 1.94872 2.07616 2.21068 2.66002

8 1.36857 1.47746 1.59385 1.71819 1.85093 1.99256 2.14359 2.30454 2.47596 3.05902

9 1.42331 1.55133 1.68948 1.83846 1.99900 2.17189 2.35795 2.55803 2.77308 3.51788

10 1.48024 1.62889 1.79085 1.96715 2.15892 2.36736 2.59374 2.83942 3.10585 4.04556

11 1.53945 1.71034 1.89830 2.10485 2.33164 2.58043 2.85312 3.15176 3.47855 4.65239

12 1.60103 1.79586 2.01220 2.25219 2.51817 2.81267 3.13843 3.49845 3.89598 5.35025

13 1.66507 1.88565 2.13293 2.40985 2.71962 3.06581 3.45227 3.88328 4.36349 6.15279

14 1.73168 1.97993 2.26090 2.57853 2.93719 3.34173 3.79750 4.31044 4.88711 7.07571

15 1.80094 2.07893 2.39656 2.75903 3.17217 3.64248 4.17725 4.78459 5.47357 8.13706

16 1.87298 2.18287 2.54035 2.95216 3.42594 3.97031 4.59497 5.31089 6.13039 9.35762

17 1.94790 2.29202 2.69277 3.15882 3.70002 4.32763 5.05447 5.89509 6.86604 10.76126

18 2.02582 2.40662 2.85434 3.37993 3.99602 4.71712 5.55992 6.54355 7.68997 12.37545

19 2.10685 2.52695 3.02560 3.61653 4.31570 5.14166 6.11591 7.26334 8.61276 14.23177

20 2.19112 2.65330 3.20714 3.86968 4.66096 5.60441 6.72750 8.06231 9.64629 16.36654

1] Calculation of Net Present Value of Each Project:

Final answer

The Net present Value of Project Turtle (Referred as Project A) is Higher than Project Snake (Referred as Project B) but the Investment Base of Project A is Higher than Project B,

The Decision can be taken the Basis of Profitiability Index which suggest that Project B has Higher Inflows compared to Initial Investment,and Hence Project Snake is better than project Turtle

(a)

Your answer is correct.

		Project Turtle		Project Snake
Net present value		$ 71443		$70119

eTextbook and Media

(b)

Calculate the profitability index for each project. (Round answers to 2 decimal places, e.g. 15.25.)

		Project Turtle		Project Snake
Profitability index		enter the profitability index rounded to 2 decimal places		enter the profitability index rounded to 2 decimal places