Question

Exercise 24-11 Net present value, profitability index LO P3 Following is information on two alternative investments being considered by Tiger Co. The company requires a 7% 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 $ (86,000 ) $ (132,000 ) Expected net cash flows in year: 1 28,000 64,500 2 38,500 54,500 3 63,500 44,500 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?

Answer #1

Project X1 |
Project X2 |
|||||

Particulars |
Year |
PVF@7% |
Amount |
Present Value |
Amount |
Present Value |

Cash Inflow | 1 | 0.935 | 28000 | $26,180 | 64500 | $60,307.50 |

2 | 0.873 | 38500 | 33,610.50 | 54500 | 47,578.50 | |

3 | 0.816 | 63500 | 51,816 | 44500 | 36,312 | |

Present value of cash inflow | $111,605.50 | $144,198 | ||||

Less: Initial Investment | 0 | 1 | 86000 | $86000 | 132000 | $132000 |

a. Net Present Value |
$25,606.50 |
$12,198 |
||||

b. Profitability index=Present value of cash inflow / Initial Investment |
1.30 |
1.09 |

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
$
(80,000
)
$
(123,000
)
Expected net
cash flows in:
Year 1
28,000
64,500
Year 2
38,500
54,500
Year 3
63,500
44,500
a. Compute each project’s net present
value.
b. Compute each...

Exercise 11-10 NPV and profitability index LO P3
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
$
(176,325
)
$
(150,960
)
Expected net cash flows in
year:
1
37,000
26,000
2
55,000
51,000
3
77,295
53,000
4
93,400
78,000
5...

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...

Following is information on two alternative investments being
considered by Tiger Co. The company requires a 7% 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
$
(106,000
)
$
(172,000
)
Expected net cash flows in:
Year 1
38,000
79,500
Year 2
48,500
69,500
Year 3
73,500
59,500
a. Compute each project’s net present value.
b. Compute each...

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
$
(190,325
)
$
(156,960
)
Expected net cash flows in
year:
1
37,000
30,000
2
42,000
47,000
3
80,295
52,000
4
79,400
72,000
5
55,000
21,000
a. For each alternative project...

QS B-6 Present value of an annuity LO P3
Beene Distributing is considering a project that will return
$230,000 annually at the end of each year for the next ten years.
If Beene demands an annual return of 9% and pays for the project
immediately, how much is it willing to pay for the project? (PV of
$1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate
factor(s) from the tables provided. Round PVA factor to 4...

xercise 25-6 Net present value LO P3
A new operating system for an existing machine is expected to
cost $770,000 and have a useful life of six years. The system
yields an incremental after-tax income of $295,000 each year after
deducting its straight-line depreciation. The predicted salvage
value of the system is $12,400.
A machine costs $470,000, has a $30,500 salvage value, is
expected to last eight years, and will generate an after-tax income
of $70,000 per year after straight-line...

Problem 24-4A Computing net present value of alternate
investments LO P3 Interstate Manufacturing is considering either
replacing one of its old machines with a new machine or having the
old machine overhauled. Information about the two alternatives
follows. Management requires a 10% rate of return on its
investments. Use the (PV of $1, FV of $1, PVA of $1, and FVA of $1)
(Use appropriate factor(s) from the tables provided.) Alternative
1: Keep the old machine and have it overhauled....

1. NPV (Net Present Value) versus PI
(Profitability Index)
Consider the following two mutually exclusive projects
available to Global Investments, Inc.:
Projects
C0
C1
C2
PI
NPV
A
-$1000
$1000
$500
1.32
$322
B
-500
500
400
1.57
285
The appropriate discount rate for the projects is 10%.
Global Investments chose to undertake project A. At a luncheon for
shareholders, the manager of a pension fund that owns a substantial
amount of the firm’s stock asks you why the...

Required information
Exercise 13-10 Efficiency and profitability analysis LO P3
[The following information applies to the questions
displayed below.]
Simon Company’s year-end balance sheets follow.
At December 31
2017
2016
2015
Assets
Cash
$
32,200
$
35,000
$
37,400
Accounts receivable, net
86,100
63,500
50,500
Merchandise inventory
112,000
82,400
53,500
Prepaid expenses
10,550
9,400
4,800
Plant assets, net
278,000
249,500
229,000
Total assets
$
518,850
$
439,800
$
375,200
Liabilities and Equity
Accounts payable
$
128,400
$
74,250
$
50,400...

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