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Homework answers / question archive / Exercise 11-10 NPV and profitability index LO P3 Following is information on two alternative investments being considered by Jolee Company
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 | Project B | |||||||||
| Initial investment | $ | (189,325 | ) | $ | (156,960 | ) | ||||
| Expected net cash flows in year: | ||||||||||
| 1 | 54,000 | 35,000 | ||||||||
| 2 | 47,000 | 46,000 | ||||||||
| 3 | 86,295 | 64,000 | ||||||||
| 4 | 95,400 | 76,000 | ||||||||
| 5 | 66,000 | 24,000 | ||||||||
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?
