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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Common stock–$10 par value, 94,000 shares
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Paid-in capital in excess of par value, common stock
326,000
Retained earnings
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Total stockholders’ equity
$
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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
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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:
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Year 2
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56,000
Year 3
78,295
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Year 4
91,400
82,000
Year 5
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considered by Jolee Company. The company requires a 8% return from
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(Use appropriate factor(s) from the tables
provided.)
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Initial investment
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$
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Expected net cash flows in year:
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57,000
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(Use appropriate factor(s) from the tables
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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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Expected net cash flows in year:
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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
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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
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60,000
55,000
3
75,295
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4
78,400
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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
$
(188,325
)
$
(154,960
)
Expected net cash flows in:
Year 1
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33,000
Year 2
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Year 3
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87,400
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Year 5
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