Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project X1Project X2Initial investment$ (110,000)$ (180,000)Net cash flows in: Year 140,00082,500Year 250,50072,500Year 375,50062,500 a. Compute each project’s net present value.b. Compute each project’s profitability index.c. If the company can choose only one project, which should it choose on the basis of profitability index? Required A Required B Required CCompute each project's profitability index.Project X1Project X2Numerator:Present value of net cash flowsProfitability Index1/ Initial investment$$Denominator:==110,000180,000 ==Profitability IndexProfitability index0.000.00 Required A Required B Required CCompute each project's net present value. (Round your final answers toNet Cash Present ValueFlowsof 1 at 4%Present Value ofNet Cash FlowsProject X1Year 1Year 2Year 3TotalsInitial investmentNet present valueProject X2Year 1Year 2Year 3TotalsInitial investmentNet present value$$$40,00050,50075,500166,00082,50072,50062,500$ 217,500GA$tA$tA$$000

Formulae used: Net Present Value=(Present Value of Cash Inflows-Initial Investment)Profitability…

Answered: Following is information on two…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% 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 X1	Project X2
Initial investment	$ (110,000)	$ (180,000)
Net cash flows in:
Year 1	40,000	82,500
Year 2	50,500	72,500
Year 3	75,500	62,500

a. Compute each project’s net present value.
b. Compute each project’s profitability index.
c. If the company can choose only one project, which should it choose on the basis of profitability index?

Required A Required B Required C
Compute each project's profitability index.
Project X1
Project X2
Numerator:
Present value of net cash flows
Profitability Index
1
/ Initial investment
$
$
Denominator:
=
=
110,000
180,000 =
=
Profitability Index
Profitability index
0.00
0.00

Required A Required B Required C
Compute each project's net present value. (Round your final answers to
Net Cash Present Value
Flows
of 1 at 4%
Present Value of
Net Cash Flows
Project X1
Year 1
Year 2
Year 3
Totals
Initial investment
Net present value
Project X2
Year 1
Year 2
Year 3
Totals
Initial investment
Net present value
$
$
$
40,000
50,500
75,500
166,000
82,500
72,500
62,500
$ 217,500
GA
$
tA
$
tA
$
$
0
0
0

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