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Exercise 24-10 NPV and profitability index LO P3

Following is information on two alternative investments being considered by Jolee Company. The company requires a 8% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

	Project A					Project B
Initial investment		$	(172,325	)			$	(150,960	)
Expected net cash flows in:
Year 1			40,000					32,000
Year 2			43,000					48,000
Year 3			74,295					59,000
Year 4			80,400					78,000
Year 5			55,000					31,000

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. 172,325 Project A Initial Investment $ Chart Values are Based on: % Year Cash Inflow X PV Factor = Present Value 1 2 = 3 4 = 5 Project B $ Initial Investment 150,960 Year Cash Inflow X PV Factor = Present Value 1 = 2 = 3 4 5 Required A Required B For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Profitability Index Choose Numerator: / Choose Denominator: = Profitability Index Profitability index / 0 Project A Project B If the company can only select one project, which should it choose? 0

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