133 points Problem 8-17 NPV and Profitability Index [LO 4, 6 Robben Manufacturin

Question

133 points Problem 8-17 NPV and Profitability Index [LO 4, 6 Robben Manufacturing has the following two possible projects. The required return is 10 percent 0 $ 28,400$ 64,000 15,000 35,000 13,000 33,000 14,400 12,800 15,200 10,800 a. What is the proftablity index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g. 32.161.) Profitability index Project Z b. What is the NPV for each project? (D o not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project Z c. Which, if either, of the projects should the company accept?

Explanation / Answer

a)profitability index =Present value /Initial cost

Y :42465.88/28400= 1.495

Z :74868.46/64000 = 1.170

B)NPV= present value -Initial cost

Y:42465.88-28400=14065.88

Z:74868.46-64000=10868.46

C)since project Y as higher PI and NPV ,it should be selected.

Year Project Y Project Z PVF@10% cash flow present value [PVF*cash flow] cash flow Present value [PVF*cash flow] 1 .90909 14400 13090.90 15000 13636.35 2 .82645 12800 10578.56 35000 28925.75 3 .75131 15200 11419.91 13000 9767.03 4 .68301 10800 7376.51 33000 22539.33 42465.88 74868.46

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