You are asked to evaluate two projects for Adventures Club Inc. Using the net present Value method combined with the profitability index approach, which project would you select? Use a discount rate of 12 percent.
Project X (trips to Disneyland) Project Y (international film festivals)
($10,000 Investment) ($22,000 investment)
Year cash flow Year cash flow
1 $4,000 1 10,800
2 5,000 2 9,600
3 4,200 3 6,000
4 3,600 4 7,000
See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks
Note: A further possible refinement under the net present value ...
The problem illustrates how to select the best project for capital investment. The problem had two different alternative projects. The cash flows for both the projects are given. The post explains given this information what technique one should use to screen projects and rank them for selection purpose. The students would learn how to calculate NPV and profitability Index for project selection.