The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II)
0 –$87,000 –$55,000
1 36,900 11,700
2 47,000 34,500
3 27,000 28,500
Requirement 1:
(a) If the required return is 10 percent, what is the profitability index for each project? (Do not round intermediate calculations). Round your answers to 3 decimal places.
(b) If the required return is 10 percent and the company applies the profitability index decision rule, which project should the firm accept?
Requirement 2:
(a) If the required return is 10 percent, what is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places .

PI for the first project = 1 + ($5,673.93 / 87,000) = 1.065

PI for the second project = 1 + ($5,561.23 / $55,000) = 1.101

b. the second project should be chosen because the PI is higher

NPV for 1 = $5,673.93

NPV for 2 =   $5,561.23

Explanation:

profitability index  = 1 + (NPV / Initial investment)

Net present value is the present value of after tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator

for the first project

Cash flow in year 0 = –$87,000

Cash flow in year 1 = 36,900

Cash flow in year 2 = 47,000

Cash flow in year 3 =  27,000

I = 10%

NPV = $5,673.93

for the second project

Cash flow in year 0 = –$55,000

Cash flow in year 1 = 11,700

Cash flow in year 2 =  34,500

Cash flow in year 3 = 28,500

I = 10%

NPV = $5,561.23  

PI for the first project = 1 + ($5,673.93 / 87,000) = 1.065

PI for the second project = 1 + ($5,561.23 / $55,000) = 1.101

b. the second project should be chosen because the PI is higher

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

enlightenment impacted society by introducing the idea that mankind could use reason to discover the laws of the world and the rights of mankind. these ideals affected all factions of society, from politics to religion.