Question

Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% 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 $(184,325) Project B $(159,960) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 Year 4 Year 5 42,000 40,000 88,295 94,400 69,000 36,000 49,000 48,000 83,000 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? Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the net present value. Project A Initial Investment $ 184,325 Chart Values are Based on:

Answer 1

Answer-a)-

Calculation of Net Present Value
Project A
Year	Net Cash Flows (a)	Present Value of 1 at 10% (b)	Present Value of cash flows (c=a*b)
Year 1	42000	0.909	38178
Year 2	40000	0.826	33040
Year 3	88295	0.751	66310
Year 4	94400	0.683	64475
Year 5	69000	0.621	42849
Totals
Total present value of cash inflow (a)			244852
Total cash outflow (b)			184325
Net Present Value (c=a-b)			60527
Calculation of Net Present Value
Project B
Year	Net Cash Flows (a)	Present Value of 1 at 10% (b)	Present Value of cash flows (c=a*b)
Year 1	36000	0.909	32724
Year 2	49000	0.826	40474
Year 3	48000	0.751	36048
Year 4	83000	0.683	56689
Year 5	36000	0.621	22356
Totals
Total present value of cash inflow (a)			188291
Total cash outflow (b)			159960
Net Present Value (c=a-b)			28331

b)-

Calculation of Project Profitability Index
Particulars	Project Number
	A	B
Present Value of cash inflows $ (A)	244852	188291
Investment required $ (B)	184325	159960
Profitability Index C=A/B	1.33	1.18

If the company can select one project, project A should be choose.