Problem $12-25$

You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate of $12$ percent. Use Appendix B$.$

Project X $($DVDs

of the Weather Reports$)$

$($$$50,000$ Investment$)$

Project Y $($Slow$-$Motion

Replays of Commercials$)$

$($$$70,000$ Investment$)$

Year Cash Flow Year Cash Flow

$1$ $$25,0001$ $$35,000$

$223,000228,000$

$324,000329,000$

$423,600431,000$

a$.$ Calculate the profitability index for project X$.($Round $"$PV Factor" to $3$ decimal places. Round the final answer to $2$ decimal places.$)$

PI

b$.$ Calculate the profitability index for project Y$.($Round $"$PV Factor" to $3$ decimal places. Round the final answer to $2$ decimal places.$)$

PI

c$.$ Using the NPV method combined with the PI approach, which project would you select? Use a discount rate of $12$ percent.

multiple choice

Project Y

Project X