Shilling Company is evaluating two different capital investments, Project X and Y. Either X or Y would cost $210,000, and the company cannot afford to do both. The company expects that Project X would provide net cash inflows of $62,000 per year for 5 years. For Project Y, the net cash inflows are expected to be as follows: year Cash inflows from project Y 1 $ 44,000 2 $48,000 3 $60,000 4 $76,000 5 $80,000 Total $308,000 Shilling’s cost of capital is 10%. Required: 1) Calculate the present value index for Project X and for Project Y. Round your answer to three decimal places. Project X _________________ Project Y _________________ 2) Indicate whether each of the projects is an acceptable investment. Project X _________________ Project Y _________________ 3) Based on present value index, which of the two projects should Shilling implement?
Shilling Company is evaluating two different capital investments, Project X and Y. Either X or Y would cost $210,000, and the company cannot afford to do both. The company expects that Project X would provide net
| year | Cash inflows from project Y |
| 1 |
$ 44,000 |
| 2 | $48,000 |
| 3 | $60,000 |
| 4 | $76,000 |
| 5 | $80,000 |
| Total | $308,000 |
Shilling’s cost of capital is 10%.
Required:
1) Calculate the present value index for Project X and for Project Y. Round your answer to three decimal places.
Project X _________________ Project Y _________________
2) Indicate whether each of the projects is an acceptable investment. Project X _________________
Project Y _________________
3) Based on present value index, which of the two projects should Shilling implement?
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