Following is information on two alternative investments. Beachside Resort is considering building a new pool or spa.
Question:
Following is information on two alternative investments. Beachside Resort is considering building a new pool or spa. The company requires a 10% return from its investments. For each investment project, compute
(a) Net present value and
(b) Profitability index.
(c) If the company can only select one project, which should it choose on the basis of profitability index?
Transcribed Image Text:
Pool Spa Initial investment $(160,000) $(105,000) Net cash flows: Year 1 40,000 32,000 Year 2. 56,000 50,000 Year 3 80,295 66,000 Year 4 90,400 72,000 Year 5 65,000 24,000
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