Chapter 11 EX 11-10

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Item 1

Item 1 20 points

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 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		$	(171,325	)			$	(158,960	)
Expected net cash flows in:
Year 1			54,000					27,000
Year 2			42,000					61,000
Year 3			82,295					67,000
Year 4			85,400					67,000
Year 5			56,000					32,000

a. For each alternative project compute the net present value. b. For each alternative project compute the profitability index. If the company can only select one project, which should it choose?