Following is information on two alternative investments being considered by Tige
ID: 2657723 • Letter: F
Question
Following is information on two alternative investments being considered by Tiger Co. The company requires a 6% return from its investments. (PV of S1. EV. of St. PVA of $1, and EVA of $) (Use appropriate factor(s) from the tables provided.) lProdece XAProject x2 S (94,000) $(148,000) Initial investment Expected net cash flowa in year 32,000 42,500 67,500 70,500 60,500 50,500 a. Compute each project's net present value. b. Compute each projects profitability Index. If the company can choose only one project, which should it choose? Complete this question by entering your answers in the tabs below Required A Required Compute each project's net present value. (Round your final answers to the nearest dollar) Project X1 IDEN 8of13 ??// Next >Explanation / Answer
a.
Net Cash Flow
Present Value
of $ 1 at 6 %
Present Value of
Net Cash Flow
Project X1
Year 1
$32,000
0.9434
$30,188.80
Year 2
$42,500
0.8900
$37,825.00
Year 3
$67,500
0.8396
$56,673.00
Totals
$124,686.80
Amount Invested
$94,000.00
Net present value
$30,686.80
Project X2
Year 1
$70,500
0.9434
$66,509.70
Year 2
$60,500
0.8900
$53,845.00
Year 3
$50,500
0.8396
$42,399.80
Totals
$162,754.50
Amount Invested
$148,000.00
Net present value
$14,754.50
Present Value of Net Cash Flow = Net Cash Flow x Present Value of $ 1 at 6 %
Net present value = Total net cash flow – Amount invested
b.
Profitability Index
Choose Numerator
/
Choose Denominator
=
Profitability Index
Total Present Value of Net Cash flows
/
Amount Invested
=
Profitability Index
Project X1
$124,686.80
/
$94,000.00
=
1.33
Project X2
$162,754.50
/
$148,000.00
=
1.10
If the company can choose only one project, which should it choose?
Project X1
Net Cash Flow
Present Value
of $ 1 at 6 %
Present Value of
Net Cash Flow
Project X1
Year 1
$32,000
0.9434
$30,188.80
Year 2
$42,500
0.8900
$37,825.00
Year 3
$67,500
0.8396
$56,673.00
Totals
$124,686.80
Amount Invested
$94,000.00
Net present value
$30,686.80
Project X2
Year 1
$70,500
0.9434
$66,509.70
Year 2
$60,500
0.8900
$53,845.00
Year 3
$50,500
0.8396
$42,399.80
Totals
$162,754.50
Amount Invested
$148,000.00
Net present value
$14,754.50