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Exercise 11-10 NPV and profitability index LO P3 Following is information on two alternative investments being considered by Jolee Company. The company requires a 12% return from its investments. (PV of $1. FV of $1. PVA of S1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project A $(179,325) Project B $(149,960) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 Year 4 Year 5 49,000 42,000 80,295 78,400 59,000 32,000 46,080 48,000 74,000 36,000 a. For each alternative project compute the net present value. b. For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Required A Required B For each alternative project compute the net present value Project A Initial Investment $ 179,325 Chart Values are Based on: % PV Year Cash Inflow * Factor 1 Present Value 2 3 4 5 Initial Investment Project B $ 149,960 Cash Inflow X PV Factor Year #1 Present Value 1 2 3 4 5 Required For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Choose Numerator: Profitability Index Choose Denominator: = Profitability Index Profitability Index Project A Project B If the company can only select one project, which should it choose?

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