You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 10 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) ($24,000 Investment) | Project Y (Slow-Motion Replays of Commercials) ($44,000 Investment) | |||||||||
| Year | Cash Flow | Year | Cash Flow | |||||||
| 1 | $ | 12,000 | 1 | $ | 22,000 | |||||
| 2 | 10,000 | 2 | 15,000 | |||||||
| 3 | 11,000 | 3 | 16,000 | |||||||
| 4 | 10,600 | 4 | 18,000 | |||||||
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 based on the profitability index?
- Project X
- Project Y
