Question:
You are asked to evaluate two projects for Adventures Club, Inc. Using the net present value method combined with the profitability index approach whereas profitability index = present value of the inflows divided by Present value of the outflows.
Discount rate is 12%
Which would be best to select? Project X or Project Y? Why?
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 9,800
3 4,200 3 6,000
4 3,600 4 7,000