Mobilio Company has hired a consultant to propose a way to increase the company’s revenues. The consultant has evaluated two mutually exclusive projects with the following information provided for each project:                                             Project Tiger               Project Shark Capital investment                $1,105,000                  $625,000 Annual cash flows                  180,000                      105,000 Estimated useful life               10 years                     10 years

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
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Mobilio Company has hired a consultant to propose a way to increase the company’s revenues. The consultant has evaluated two mutually exclusive projects with the following information provided for each project:

                                            Project Tiger               Project Shark
Capital investment                $1,105,000                  $625,000
Annual cash flows                  180,000                      105,000
Estimated useful life               10 years                     10 years


Mobilio Company uses a discount rate of 9% to evaluate both projects.
Instructions
(a) Calculate the net present value of both projects.
(b) Calculate the profitability index for each project.
(c) Which project should Mobilio accept?

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