You are asked to evaluate the following two projects for the Norton corporation.
ID: 2754757 • Letter: Y
Question
You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 10 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.)
Which project would you select?
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You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 10 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Explanation / Answer
Profitability index= 1+NPV/Initial Inv
Profitability index=1+32143.57/46000=1.69
profitability index= 1+33769.55/80000=1.42
Accept a project if the profitability index is greater than 1, stay indifferent if the profitability index is zero and don't accept a project if the profitability index is below 1.
since both th projects have above 1 profitability index decision must be taken with the help of npv. project with greter npv should be accepted.
project Y having greater npv than project X
PROJECT Y SHOULD BE SELECTED
PROJECT X YEAR CASH FLOWs DCF@10% DISC Cash Flows 0 -46000 1 -46000.00 1 30000 0.91 27272.73 2 28000 0.83 23140.50 3 20000 0.75 15026.30 4 18600 0.68 12704.05 NPV 32143.57Related Questions
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