Question
You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 13 percent. Use Appendix B for an
You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 13 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Project X (Videotapes of the Weather Report) ($52,000 Investment) | Project Y (Slow-Motion Replays of Commercials) ($72,000 Investment) | ||
|---|---|---|---|
| Year | Cash Flow | Year | Cash Flow |
| 1 | $ 26,000 | 1 | $ 36,000 |
| 2 | 24,000 | 2 | 29,000 |
| 3 | 25,000 | 3 | 30,000 |
| 4 | 24,600 | 4 | 32,000 |
Calculate the profitability index for project X.
Note: Do not round intermediate calculations and round your answer to 2 decimal places.
Calculate the profitability index for project Y.
Note: Do not round intermediate calculations and round your answer to 2 decimal places.
Which project would you select based on the profitability index?
- multiple choice
Project X
Project Y
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