The Bosa Corporation is trying to choose between the following two mutually excl

Question

The Bosa Corporation is trying to choose between the following two mutually exclusive design

projects:

Year Cash Flow (I) Cash Flow (II)

0 –$66,000 –$ 17,800

1 29,000 9,600

2 29,000 9,600

3 29,000 9,600

a-1 If the required return for both projects is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

Profitability Index

Project I

Project II

b-1 What is the NPV for both projects? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Round your answers to 2 decimal places, e.g.,32.16.)

NPV

Project I $

Project II $

Explanation / Answer

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Project 1 A B C D 1 Year 0 1 2 3 2 Cash Flows -66000 29000 29000 29000 3 Discount Rate 10% Profitability Index 1.093 Using Excel formul = 1 +(NPV(A3,B2:D2)+A2)/66000 Project 2 A B C D 1 Year 0 1 2 3 2 Cash Flows -17800 9600 9600 9600 3 Discount Rate 10% Profitability Index 1.341 Using Excel formul = 1 +(NPV(A3,B2:D2)+A2)/17800 Project 1 A B C D 1 Year 0 1 2 3 2 Cash Flows -66000 29000 29000 29000 3 Discount Rate 10% NPV 6118.708 Using Excel formul = (NPV(A3,B2:D2)+A2) Project 2 A B C D 1 Year 0 1 2 3 2 Cash Flows -17800 9600 9600 9600 3 Discount Rate 10% Profitability Index 6073.779 Using Excel formul = (NPV(A3,B2:D2)+A2)

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