Following is information on two alternative investments being considered by Jole
ID: 2436396 • Letter: F
Question
Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% return its investments. (PV of S1. EV of S1. PVA of S1. and FVA of $1 (Use appropriate factor(s) from the tables provided.) rom Initial investment Expected net cash flows in year: Project A Project B (181, 325) $(157,960) 52,000 59,8e0 85,295 87,400 70,000 43,000 48,800 66,000 68,000 21,800 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?Explanation / Answer
1)
NPV = 263275.69 - 181325 = 81950.69
Project B:
NPV = 187830.93 -157960 = 29870.93
2)Profitability index =present value /initial investment
Project A= 263275.69/181325=1.45
Project B = 187830.93/157960=1.19
Project A shoulb be selected based on Profitabiliy index
Project A Initial investment (181325) i = 10% year cash flow * PVF = Present value 1 52000 .90909 47272.68 2 59000 .82645 48760.55 3 85295 .75131 64082.99 4 87400 .68301 59695.07 5 70000 .62092 43464.4 263275.69