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.