ou are asked to evaluate the following two projects for the Norton corporation.
ID: 2648039 • Letter: O
Question
ou are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 12 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.)
ou are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 12 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Explanation / Answer
Profitability index = PV of future cash flows/Initial investment
Project X:
Initial investment = 26,000
Calculation of PV of future cash flows for project X =
Formula for calculation of PV = cash flow/(discount factor)^time
Profitability index = 36389.65/26000 = 1.40
b. PV of project Y
Formula for calculation of PV = cash flow/(discount factor)^time
Profitability index = 57465.92/46000 = 1.25
Year Amount Discount factor PV 1 13,000.00 1.12 11,607.14 2 11,000.00 8,769.13 3 12,000.00 8,541.36 4 11,600.00 7,372.01 Total 36,289.65Related Questions
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