Question
In: Finance
Exercise 11-10 NPV and profitability index LO P3 Following is information on two alternative investments being...
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 | $ | (176,325 | ) | $ | (150,960 | ) | ||||
| Expected net cash flows in year: | ||||||||||
| 1 | 37,000 | 26,000 | ||||||||
| 2 | 55,000 | 51,000 | ||||||||
| 3 | 77,295 | 53,000 | ||||||||
| 4 | 93,400 | 78,000 | ||||||||
| 5 | 58,000 | 37,000 | ||||||||
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?
Complete this question by entering your answers in the tabs below.
Required A
For each alternative project compute the net present value.
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Required B
For each alternative project compute the profitability index. If the company can only select one project, which should it choose?
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Solutions
Expert Solution
| Discount rate | 10.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| (176,325.00) | 0 | (176,325.00) | (176,325.00) |
| 37,000.000 | 1 | 33,636.36 | (142,688.64) |
| 55,000.000 | 2 | 45,454.55 | (97,234.09) |
| 77,295.000 | 3 | 58,072.88 | (39,161.21) |
| 93,400.000 | 4 | 63,793.46 | 24,632.24 |
| 58,000.000 | 5 | 36,013.44 | 60,645.68 |
NPV of A = 60,645.68
PI of A = 1 + 60,645.68/176,325 = 1.34
project B:
| Discount rate | 10.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| (150,960.00) | 0 | (150,960.00) | (150,960.00) |
| 26,000.000 | 1 | 23,636.36 | (127,323.64) |
| 51,000.000 | 2 | 42,148.76 | (85,174.88) |
| 53,000.000 | 3 | 39,819.68 | (45,355.19) |
| 78,000.000 | 4 | 53,275.05 | 7,919.86 |
| 37,000.000 | 5 | 22,974.09 | 30,893.95 |
NPV of B = 30,893.95
PI of B = 1 + 30,893.95/150,960 = 1.20
choose A since it has a higher npv
jeff jeffy answered 2 years agoRelated Solutions
Exercise 11-10 NPV and profitability index LO P3 Following is information on two alternative investments being...
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
$
(176,325
)
$
(150,960
)
Expected net cash flows in
year:
1
37,000
26,000
2
55,000
51,000
3
77,295
53,000
4
93,400
78,000
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Exercise 11-10 Recording and reporting treasury stock transactions LO P3 On October 10, the stockholders’ equity...
Exercise 11-10 Recording and reporting treasury stock
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On October 10, the stockholders’ equity of Sherman Systems
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Common stock–$10 par value, 94,000 shares
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$
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Paid-in capital in excess of par value, common stock
326,000
Retained earnings
1,040,000
Total stockholders’ equity
$
2,306,000
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Following is information on two alternative investments being considered by Jolee Company. The company requires a...
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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 ) $ (144,960 ) Expected net
cash flows in year: 1 54,000 38,000 2 45,000 59,000 3 90,295 52,000
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Following is information on two alternative investments being considered by Jolee Company. The company requires a...
Following is information on two alternative investments being
considered by Jolee Company. The company requires a 6% 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
$
(171,325
)
$
(149,960
)
Expected net cash flows in:
Year 1
48,000
33,000
Year 2
55,000
56,000
Year 3
78,295
54,000
Year 4
91,400
82,000
Year 5
54,000
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Following is information on two alternative investments being considered by Jolee Company. The company requires a...
Following is information on two alternative investments being
considered by Jolee Company. The company requires a 8% 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
$
(176,325
)
$
(157,960
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Expected net cash flows in year:
1
36,000
28,000
2
57,000
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3
91,295
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4
81,400
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5
68,000
30,000
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(Use appropriate factor(s) from the tables
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Initial investment
$
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$
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Expected net cash flows in year:
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(Use appropriate factor(s) from the tables
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Project X1
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Initial investment
$
(130,000
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Expected net cash flows in year:
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Following is information on two alternative investments being considered by Jolee Company. The company requires a...
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considered by Jolee Company. The company requires a 6% 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 $ (174,325 ) $ (145,960 ) Expected net
cash flows in: Year 1 40,000 41,000 Year 2 42,000 57,000 Year 3
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Following is information on two alternative investments being considered by Jolee Company. The company requires a...
Following is information on two alternative investments being
considered by Jolee Company. The company requires a 8% 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
$
(184,325
)
$
(154,960
)
Expected net cash flows in
year:
1
50,000
29,000
2
60,000
55,000
3
75,295
48,000
4
78,400
83,000
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71,000
22,000
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Following is information on two alternative investments being considered by Jolee Company. The company requires a...
Following is information on two alternative investments being
considered by Jolee Company. The company requires a 6% 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
$
(188,325
)
$
(154,960
)
Expected net cash flows in:
Year 1
50,000
33,000
Year 2
41,000
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Year 3
80,295
57,000
Year 4
87,400
68,000
Year 5
64,000
34,000
a. For...
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