You are asked to evaluate the following two projects for theNorton corporation. Use a discount rate of 12 percent. Use AppendixB for an approximate answer but calculate your final answer usingthe formula and financial calculator methods.
Project X (Videotapes
of the Weather Report)
($48,000 Investment) | | Project Y (Slow-Motion
Replays of Commercials)
($68,000 Investment) |
| Year | Cash Flow | | Year | Cash Flow |
| 1 | $ | 24,000 | | | 1 | $ | 34,000 | |
| 2 | | 22,000 | | | 2 | | 27,000 | |
| 3 | | 23,000 | | | 3 | | 28,000 | |
| 4 | | 22,600 | | | 4 | | 30,000 | |
|
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a. Calculate the profitability index for projectX. (Do not round intermediate calculationsand round your answer to 2 decimal places.)
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b. Calculate the profitability index for projectY. (Do not round intermediate calculations and round youranswer to 2 decimal places.)
c. Which project would you select based on theprofitability index?
