Question

You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 13 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Project X (Videotapes of the Weather Report) ($44,000 Investment)						Project Y (Slow-Motion Replays of Commercials) ($64,000 Investment)
Year		Cash Flow				Year		Cash Flow
1		$	22,000			1		$	32,000
2			20,000			2			25,000
3			21,000			3			26,000
4			20,600			4			28,000

a. Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.)

    

  
b. Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Which project would you select based on the profitability index?

• Project X

• Project Y

Answer 1