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)
($20,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($40,000 Investment)
Year Cash Flow Year Cash Flow
1 $ 10,000 1 $ 20,000
2 8,000 2 13,000
3 9,000 3 14,000
4 8,600 4 16,000
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)
($20,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($40,000 Investment)
Year Cash Flow Year Cash Flow
1 $ 10,000 1 $ 20,000
2 8,000 2 13,000
3 9,000 3 14,000
4 8,600 4 16,000
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