80.2K

Verified Solution

Link Copied!

Following is information on two alternative investments being considered by Tiger Co. The company requires a 12% 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 X1					Project X2
Initial investment		$	(80,000	)			$	(120,000	)
Expected net cash flows in year:
1			25,000					60,000
2			35,500					50,000
3			60,500					40,000

a. Compute each projects 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 B Compute each project's net present value. Present Value Present Net Cash Value of 1 of Net Cash Flows at 12% Flows Project X1 S 25,000 24.038x Year 1 0.9615 0.9246 Year 2 35,500 32,823 Year 3 60,500 0.8890 53,785 S 121,000 Totals 110,646 Amount (80,000) invested Net present value 30,640 Project X2 S 60,000 Year 1 0.9615 57,800 0.9246 46,230x Year 2 50,000 35,580x Year 3 40,000 0.8890 S 150,000 Totals 139.480 Amount (120,000) invested Net present value 19.480 Required A Required B Required A Required B Compute each project's profitability index. If the company can choose only one project, which should it Profitability Index Choose Denominator: Profitability Index Profitability Choose Numerator: Present value of net cash flows Initial investment index Project 110,846 80,000 1.38 X1 Project X2 139,480 x 120,000 1.16 Project X1 If the company can choose only one project, which should it choose?

Answer & Explanation Solved by verified expert

See Answer