Following is information on two alternative investments being considered by Jole
ID: 2594537 • Letter: F
Question
Following is information on two alternative investments being considered by Jolee Company. The company requires a 6% 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 $(179,325) $(145,960) Initial investment Expected net cash lows in year: 2 4 49,000 51,000 83,295 88,400 71,000 30,000 48,000 63,000 85,000 22,000 1(a)For each alternative project compute the net present value Project A Initial Investment 179,325 Chart Values are Based on: Present Value YearCash Inflow x PV factor 2 4 Project EB Initial Investment145,960 Present Value YearCash Inflow x PV factor 2 4Explanation / Answer
1(a)
Project A
Initial investment -179,325
Net present value = Present value of cash inflows - Present value of cash outflows
= 284,614.6 - 179,325
= 105,289.6
Project - B
Initial investment - 145,960
Net present value = Present value of cash inflows - Present value of cash outflows
= 207,684 - 145,960
= 61,724
1(b)
Profitability Index
2.
Project A (as it has higher NPV and Profitability index)
Year Cash Inflow PV factor Present value 1 49,000 0.943 46,207 2 51,000 0.890 45,390 3 83,295 0.840 69,967.8 4 88,400 0.792 70,012.8 5 71,000 0.747 53,037 284,614.6