Following is information on two alternative investments being considered by Jole
ID: 2567616 • Letter: F
Question
Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% return from its investments. (FV of $1, PV of $1. FVA of $1 and PVA of $1). (Use appropriate factor(s) from the tables provided.) Project A Project B $(177,325) S(149,960) Initial investment Expected net cash flows in year: 37,000 42,000 75,295 78,400 55,000 30,000 48,000 50,000 71,000 35,000 1(a) For each alternative project compute the net present value Project A Initial Investment 177,325 Chart Values are Based on: Year Cash Inflowx PV factor Present Value Project B Initial Investment 149,960 Year Cash Inflow x PV factor Present Value 4Explanation / Answer
Answer:
1
1(a)
For each alternative project compute the net present value.
Project A
Initial Investment
$177,325
Chart values are based on:
i =
Year
Cash inflow
x
Table factor
=
Present Value
1
37000
0.9091
=
33636.7
2
42000
0.8264
=
34708.8
3
75295
0.7513
=
56569.13
4
78400
0.683
=
53547.2
5
55,000
0.6209
=
34149.5
Praent value of cash inflow
212611.33
Praent value of cash Ourflow
$177,325
Net prasent Value(NPV)
$35,286.33
Project B
Initial Investment
$149,960
Year
Cash inflow
x
Table factor
=
Present Value
1
30,000
0.9091
=
27273
2
48000
0.8264
=
39667.2
3
50,000
0.7513
=
37565.00
4
71,000
0.683
=
48493
5
35,000
0.6209
=
21731.5
Praent value of cash inflow
174729.70
Praent value of cash Ourflow
$149,960
Net prasent Value(NPV)
$24,769.70
__________________________________________________________
2
For each alternative project compute the profitability index.
Choose Numerator:
/
Choose Denominator:
=
Profitability index
Prasent value
of the cash in flow
/
Initial Investment
=
Profitability index
Project A
$212,611.33
/
$177,325
1.199
Project B
$174,729.70
/
$149,960
1.1652
3
can only select one project, which should it choose?
Answer:
Project A
.
1(a)
For each alternative project compute the net present value.