Question

In: Accounting

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 $ (189,325 ) $ (159,960 )
Expected net cash flows in:
Year 1 49,000 42,000
Year 2 41,000 51,000
Year 3 87,295 66,000
Year 4 81,400 77,000
Year 5 60,000 23,000


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?

For each alternative project compute the net present value.

Project A
Initial Investment $189,325
Chart Values are Based on:
i = %
Year Cash Inflow x PV Factor = Present Value
1 =
2 =
3 =
4 =
5 =
Project B
Initial Investment $159,960
Year Cash Inflow x PV Factor = Present Value
1 =
2 =
3 =
4 =
5 =
Profitability Index
Choose Numerator: / Choose Denominator: = Profitability Index
/ = Profitability index
Project A 0
Project B 0
If the company can only select one project, which should it choose?

Solutions

Expert Solution

Solution a:

Project A
Initial investment $189,325.00
Chart values are based on:
i= 8%
Year Cash inflows * PV Factor = Present Value
1 $49,000.00 * 0.92593 = $45,370
2 $41,000.00 * 0.85734 = $35,151
3 $87,295.00 * 0.79383 = $69,298
4 $81,400.00 * 0.73503 = $59,831
5 $60,000.00 * 0.68058 = $40,835
Total $250,485
Present value of cash inflows $250,485
Initial investment $189,325
Net Present Value $61,160
Project B
Initial investment $159,960.00
Chart values are based on:
i= 8%
Year Cash inflows * PV Factor = Present Value
1 $42,000.00 * 0.92593 = $38,889
2 $51,000.00 * 0.85734 = $43,724
3 $66,000.00 * 0.79383 = $52,393
4 $77,000.00 * 0.73503 = $56,597
5 $23,000.00 * 0.68058 = $15,653
Total $207,257
Present value of cash inflows $207,257
Initial investment $159,960
Net Present Value $47,297
Solution b:
Profitability Index
Choose Numerator / Choose Denominator = Profitability Index
NPV / Initial investment = Profitability Index
Project A $61,160 / $189,325 = 0.32
Project B $47,297 / $159,960 = 0.30
If the company can select one project, which should it choose? Project A

Related Solutions

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 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 4 91,400 75,000 5 56,000 32,000 a. For each alternative project compute...
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 31,000 a. For...
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 ) Expected net cash flows in year: 1 36,000 28,000 2 57,000 44,000 3 91,295 55,000 4 81,400 68,000 5 68,000 30,000 a. For each alternative project compute...
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 $ (174,325 ) $ (145,960 ) Expected net cash flows in: Year 1 40,000 41,000 Year 2 42,000 57,000 Year 3 74,295 58,000 Year 4 88,400 70,000 Year 5 58,000 36,000 a. For...
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 5 71,000 22,000 a. For each alternative project...
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 48,000 Year 3 80,295 57,000 Year 4 87,400 68,000 Year 5 64,000 34,000 a. For...
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 ) $ (141,960 ) Expected net cash flows in: Year 1 41,000 31,000 Year 2 43,000 59,000 Year 3 89,295 55,000 Year 4 95,400 71,000 Year 5 68,000 31,000 a. For...
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 $ (179,325 ) $ (148,960 ) Expected net cash flows in: Year 1 41,000 32,000 Year 2 60,000 44,000 Year 3 75,295 59,000 Year 4 88,400 73,000 Year 5 65,000 29,000 a....
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 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 $ (175,325 ) $ (142,960 ) Expected net cash flows in: Year 1 40,000 33,000 Year 2 44,000 43,000 Year 3 91,295 57,000 Year 4 88,400 78,000 Year 5 64,000 36,000 a. For...
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 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 $ (175,325 ) $ (142,960 ) Expected net cash flows in: Year 1 40,000 33,000 Year 2 44,000 43,000 Year 3 91,295 57,000 Year 4 88,400 78,000 Year 5 64,000 36,000 a. For...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT