Following is information on two alternative investments being considered by Tiger Co. The company requires a 9% 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 $ (96,000 ) $ (141,000 ) Expected net cash flows in: Year 1 33,000 72,000 Year 2 43,500 62,000 Year 3 68,500 52,000 a. Compute each project’s net present value. b. Compute each project’s profitability index. If the company can choose only one project, which should it choose?
Compute each project’s net present value.

Compute each project’s profitability index. If the company can choose only one project, which should it choose?

Net Cash Flows  Present Value of 1 at 9%  Present Value of Net Cash Flows  
Project X1  
Year 1  33000  0.917  30261 
Year 2  43500  0.842  36627 
Year 3  68500  0.772  52882 
Totals  $119770  
Amount invested  (96000)  1.000  (96000) 
Net present value  $23770  
Project X2  
Year 1  72000  0.917  66024 
Year 2  62000  0.842  52204 
Year 3  52000  0.772  40144 
Totals  $158372  
Amount invested  (141000)  1.000  (141000) 
Net present value  $17372 
Profitability Index = Present value of Net Cash Flows / Amount invested
Project X1 = 119770/96000 = 1.25
Project X2 = 158372/141000 1.12
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