I need help to find NPV for project 1 . These asnwer below is incorrect . Thank

Question

I need help to find NPV for project 1 . These asnwer below is incorrect . Thank You.

Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects:

a-1. If the required return is 12 percent, what is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

  

  

a-2. If the company applies the profitability index decision rule, which project should the firm accept?
  

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

b-2. If the company applies the NPV decision rule, which project should it take?
  

Year Cash Flow (I) Cash Flow (II) 0 – $ 74,000 – $ 17,000 1 21,900 9,200 2 21,900 9,200 3 21,900 9,200

Explanation / Answer

a 1)

Project 1:

Present value of cash flows = Annuity * [ 1 - 1 / ( 1 + r)n] / r

Present value of cash flows = 21,900 * [ 1 - 1 / ( 1 + 0.12)3] / 0.12

Present value of cash flows = 21,900 * 2.401831

Present value of cash flows = $52,600.10477

Profitabilty index = Present value of cash flows / Initial investment

Profitabilty index = 52,600.10477 / 74,000

Profitabilty index = 0.712

Project 2:

Present value of cash flows = 9,200 * [ 1 - 1 / ( 1 + 0.12)3] / 0.12

Present value of cash flows = 9,200 * 2.401831

Present value of cash flows = $22,096.8452

Profitabilty index = Present value of cash flows / Initial investment

Profitabilty index = 22,096.8452 / 17,000

Profitabilty index = 1.2998 or 1.3

a 2)

Project 2 as it ha s a profitabilty index of more than 1

b 1)

Project 1:

NPV = Present value of cash inflows - present value of cash outflows

NPV = 52,600.10477 - 74,000

NPV = -$21,399.90

Project 2:

NPV = 22,096.8452 - 17,000

NPV = $5,096.85

b 2)

Project 2 as it has a positive NPV

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