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Following is information on two alternative investments being considered by Jolee Company. The company requires a...

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Accounting

Following is information on two alternative investments beingconsidered by Jolee Company. The company requires a 8% return fromits investments. (PV of $1, FV of $1, PVA of $1 and FVA of $1).(Use appropriate factor(s) from the tables provided.) Project AProject B Initial investment $ (185,325 ) $ (153,960 ) Expected netcash flows in year: 1 38,000 28,000 2 59,000 43,000 3 81,295 65,0004 79,400 85,000 5 73,000 38,000 a. For each alternative projectcompute the net present value. b. For each alternative projectcompute the profitability index, if the company can only select oneproject, which should it choose?

Answer & Explanation Solved by verified expert
4.4 Ratings (898 Votes)

Project A:
Year Cashflows PVF at 8% Present value
1 38000 0.92593 35185.2
2 59000 0.85734 50583
3 81295 0.79383 64534.6
4 79400 0.73503 58361.4
5 73000 0.68058 49682.6
Present value of cash inflows 258347
Project B
Year Cashflows PVF at 8% Present value
1 28000 0.92593 25925.9
2 43000 0.85734 36865.6
3 65000 0.79383 51599.1
4 85000 0.73503 62477.5
5 38000 0.68058 25862.2
Present value of cash inflows 202730
Req a:
NPV;
Project A Project B
Present value of inflows 258347 202730
Less: Initial Investment -185325 -153960
Net present value 73022 48770
Project A shall be selected
Req b:
proftability Index:
Project A Project B
Present value of inflows 258347 202730
Divide: Initial Investment 185325 153960
Net present value 1.39 1.32
Project A shall be selected

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