1. Following is information on two alternative investments being considered by Jin Company. The company requires a 10% return from its investments.
|
|
Project A |
Project B |
|
Initial investment |
$(175,000) |
$(145,000) |
|
Expected net cash flows in year: |
|
|
|
1 |
40,000 |
32,000 |
|
2 |
56,000 |
50,000 |
|
3 |
80,295 |
66,000 |
|
4 |
90,400 |
72,000 |
|
5 |
55,000 |
29,000 |
For each alternative project compute the (a) net present value, and (b) profitability index. If the company can only select one project, which should it choose? Explain.
2. Create an Excel spreadsheet to compute the internal rate of return for each of the projects. Round the percentage return to two decimals.