Question

The Bosa Corporation is trying to choose between the following two mutually exclusive design

projects:

Year Cash Flow (I) Cash Flow (II)

0 –$66,000 –$ 17,800

1 29,000 9,600

2 29,000 9,600

3 29,000 9,600

a-1 If the required return for both projects is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

Profitability Index

Project I

Project II

b-1 What is the NPV for both projects? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Round your answers to 2 decimal places, e.g.,32.16.)

NPV

Project I $

Project II $

Answer 1

	Project 1
		A	B	C	D
1	Year	0	1	2	3
2	Cash Flows	-66000	29000	29000	29000
3	Discount Rate	10%
	Profitability Index	1.093	Using Excel formul = 1 +(NPV(A3,B2:D2)+A2)/66000
	Project 2
		A	B	C	D
1	Year	0	1	2	3
2	Cash Flows	-17800	9600	9600	9600
3	Discount Rate	10%
	Profitability Index	1.341	Using Excel formul = 1 +(NPV(A3,B2:D2)+A2)/17800
	Project 1
		A	B	C	D
1	Year	0	1	2	3
2	Cash Flows	-66000	29000	29000	29000
3	Discount Rate	10%
	NPV	6118.708	Using Excel formul = (NPV(A3,B2:D2)+A2)
	Project 2
		A	B	C	D
1	Year	0	1	2	3
2	Cash Flows	-17800	9600	9600	9600
3	Discount Rate	10%
	Profitability Index	6073.779	Using Excel formul = (NPV(A3,B2:D2)+A2)

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