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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 $(179,325 )$ (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. 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?

## Solutions

##### Expert Solution

 Project A Initital investment 179,325 Chart values are Based on i= 6% Year Cash * PV = Present inflow Factor Value 1 41,000 * 0.9434 = 38679 2 60,000 * 0.89 = 53400 3 75,295 * 0.83962 = 63219 4 88,400 * 0.79209 = 70021 5 65,000 * 0.74726 = 48572 273891 Present value of cash inflows 273891 present value of cash outflows 179325 Net Present value 94566 project B Initital investment 148,960 Chart values are Based on i= 6% Year Cash * PV = Present inflow Factor Value 1 32,000 * 0.9434 = 30189 2 44,000 * 0.89 = 39160 3 59,000 * 0.83962 = 49538 4 73,000 * 0.79209 = 57823 5 29,000 * 0.74726 = 21671 198379 Present value of cash inflows 198379 present value of cash outflows 148960 Net Present value 49419 b) Profitability Index Choose Numerator: Choose Denominator = profitability index Present value of net cash flows / Initial Investment = profitability index Project A 273891 / 179,325 1.52735 Project B 198379 / 148,960 1.33176 If the company can only select one project , which should it choose? project A

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