You are asked to evaluate the following two projects for the Norton corporation.

Question

You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 11 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.)

You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 11 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Explanation / Answer

Statement showing Cash flows Project X Project Y Particulars Time PVf 11% Amount PV Amount PV Cash Outflows                    -                        1.00         (40,000.00)         (40,000.00)         (60,000.00)         (60,000.00) PV of Cash outflows = PVCO         (40,000.00)         (60,000.00) Cash inflows               1.00                 0.9009           20,000.00           18,018.02           30,000.00           27,027.03 Cash inflows               2.00                 0.8116           18,000.00           14,609.20           23,000.00           18,667.32 Cash inflows               3.00                 0.7312           19,000.00           13,892.64           24,000.00           17,548.59 Cash inflows               4.00                 0.6587           18,600.00           12,252.40           26,000.00           17,127.01 PV of Cash Inflows =PVCI           58,772.25           80,369.94 PI = PVCI/PVCO                      1.47                      1.34

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