Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% 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 $ (100,000) $ (160,000) Net cash flows in: Year 1 35,000 75,000 Year 2 45,500 65,000 Year 3 70,500 55,000 a. Compute each project’s net present value. b. Compute each project’s profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index?
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% 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 $ (100,000) $ (160,000) Net cash flows in: Year 1 35,000 75,000 Year 2 45,500 65,000 Year 3 70,500 55,000 a. Compute each project’s net present value. b. Compute each project’s profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% 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 | $ (100,000) | $ (160,000) |
| Net cash flows in: | ||
| Year 1 | 35,000 | 75,000 |
| Year 2 | 45,500 | 65,000 |
| Year 3 | 70,500 | 55,000 |
a. Compute each project’s net present value.
b. Compute each project’s profitability index.
c. If the company can choose only one project, which should it choose on the basis of profitability index?
Transcribed Image Text:Required A Required B Required C
Compute each project's profitability index.
Project X1
Project X2
Numerator:
Profitability Index
Denominator:
< Required A
=
=
Profitability Index
Profitability index
Required C >
0
0
Transcribed Image Text:Required A
Required B Required C
Compute each project's net present value. (Round your final answers to the nearest dollar.)
Net Cash Present Value
Flows
Present Value of
Net Cash Flows
of 1 at 4%
Project X1
Year 1
Year 2
Year 3
Totals
Initial investment
Net present value
Project X2
Year 1
Year 2
Year 3
Totals
Initial investment
Net present value
$
$
0
0
$
$
$
0
0
0
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