Question

You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 10 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) ($34,000 Investment)						Project Y (Slow-Motion Replays of Commercials) ($54,000 Investment)
Year		Cash Flow				Year		Cash Flow
1		$	17,000			1		$	27,000
2			15,000			2			20,000
3			16,000			3			21,000
4			15,600			4			23,000

  
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?

Answer 1