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Following is fortion on two steberg considered by Joiee Company The company roles 10 tam omnem PVCISI VA Cond EVA E51) Use appropriate factors from the tables provided) a

Accounting Dec 03, 2020

Following is fortion on two steberg considered by Joiee Company The company roles 10 tam omnem PVCISI VA Cond EVA E51) Use appropriate factors from the tables provided) a. For stive proyect comment For each onemove project compare the promeximecorary can only seczone project which should choo Complete this westly you with the below Horst aan het 1900 4 oto 12000 3 1000 54500
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 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 3 $(155, 968) Initial investment Expected net cash flows in: Year 1 Year 2 Year 3 Year 4 Years 38,888 41, see 75,295 91, 4ee 73, 37,80 61,888 64.ee 56. Bee 29, eee 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 profitability index. If the company can only select one project, which sh choose? Profitability Index Choose Numerator: 1 Choose Denominator: Present value of net cash flows Initial investment Project A 5 184,325 Project B 5 165,900 1 the company can only select one project, which should it choose? Profitability Index Profitability index 0.00 0.00

Expert Solution

A) Calculation for net present value of Project A:

Year Cash Inflows X PV Factor = Present Value
1 38,000 X 0.9091 = 34,546
2 41,000 X 0.8264 = 33,882
3 75,295 X 0.7513 = 56,569
4 91,400 X 0.6830 = 62,426
5 73,000 X 0.6209 = 45,326
      Present value = 232,749
Present value of net cash flows 232,749
Less: Initial Investment 184,325
Net Present Value 48,424

Calculation for Net Present Value of Project B

Year Cash Inflows X PV Factor = Present Value
1 37,000 X 0.9091 = 33,637
2 61,000 X 0.8264 = 50,410
3 64,000 X 0.7513 = 48,083
4 66,000 X 0.6830 = 45,078
5 29,000 X 0.6209 = 18,006
      Present Value = 195,214
Present value of net cash flows 195,214
Less: Initial Investment 155,960
Net Present value 39,254

B) Calculation for Profitability Index

  Numerator / Denominator = Profitability Index
  Present value of net cash flows / Initial Investment = Profitability Index
Project A 232,749 / 184,325 = 1.2627
Project B 195,214 / 155,960 = 1.2517

If the company only can select one project, then Project A should be chosen . Because it has comparatively higher Net present value and profitability index over Project B.

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