Problem 12-19 Use of profitability index [LO4]
You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 14 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Project X (Videotapes
of the Weather Report)
($54,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($74,000 Investment)
Year Cash Flow Year Cash Flow 1 $ 27,000 1 $ 37,000 2 25,000 2 30,000 3 25,000 3 31,000 4 23,600 4 33,000
a. Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Profitability index
b. Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Profitability index
c. Which project would you select?
Project X Project Y
Problem 12-19 Use of profitability index [LO4]
| You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 14 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. |
| Project X (Videotapes of the Weather Report) ($54,000 Investment) | Project Y (Slow-Motion Replays of Commercials) ($74,000 Investment) | |||||||||
| Year | Cash Flow | Year | Cash Flow | |||||||
| 1 | $ | 27,000 | 1 | $ | 37,000 | |||||
| 2 | 25,000 | 2 | 30,000 | |||||||
| 3 | 25,000 | 3 | 31,000 | |||||||
| 4 | 23,600 | 4 | 33,000 | |||||||
| a. | Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.) |
| Profitability index |
| b. | Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.) |
| Profitability index |
| c. | Which project would you select? | ||||
|
Related questions
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.
| Project X (Videotapes of the Weather Report) ($22,000 Investment) | Project Y (Slow-Motion Replays of Commercials) ($42,000 Investment) | |||||||||
| Year | Cash Flow | Year | Cash Flow | |||||||
| 1 | $ | 11,000 | 1 | $ | 21,000 | |||||
| 2 | 9,000 | 2 | 14,000 | |||||||
| 3 | 10,000 | 3 | 15,000 | |||||||
| 4 | 9,600 | 4 | 17,000 | |||||||
a. Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.)
c. Which project would you select?
| Project X | |
| Project Y |
