Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 7% return from its investments.

 Exercise 11-10 (Algo) Net present value, unequal cash flows, and profitability index LO P3
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 7% return from its investments.

 

 a. Compute each project’s net present value.

b. Compute each project’s profitability index.

c. If the company can choose only one project, which should it choose on the basis of profitability index?

Explanation
a.

Present Value of 1 at 7%: From Table B.1 in Appendix B; i = 7%.


c.
Project X1. If the company can choose only one project, it should choose Project X1 because it has a higher profitability index.

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