Shilling Company is evaluating two different capital investments, Project X and Y. Either X or Y would cost $210,000, and the company cannot afford to do both. The company expects that Project X would provide net cash inflows of $62,000 per year for 5 years. For Project Y, the net cash inflows are expected to be as follows:yearCash inflows from project Y1$ 44,0002$48,0003$60,0004$76,0005$80,000Total$308,000 Shilling’s cost of capital is 10%.Required:1) Calculate the present value index for Project X and for Project Y. Round your answer to three decimal places.Project X _________________ Project Y _________________2) Indicate whether each of the projects is an acceptable investment. Project X _________________Project Y _________________3) Based on present value index, which of the two projects should Shilling implement?

Present value index is the ratio of present value of cash inflows to present value of cash outflows.

Answered: Shilling Company is evaluating two…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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Shilling Company is evaluating two different capital investments, Project X and Y. Either X or Y would cost $210,000, and the company cannot afford to do both. The company expects that Project X would provide net cash inflows of $62,000 per year for 5 years. For Project Y, the net cash inflows are expected to be as follows:

year	Cash inflows from project Y
1	$ 44,000
2	$48,000
3	$60,000
4	$76,000
5	$80,000
Total	$308,000

Shilling’s cost of capital is 10%.

Required:

1) Calculate the present value index for Project X and for Project Y. Round your answer to three decimal places.

Project X _________________ Project Y _________________

2) Indicate whether each of the projects is an acceptable investment. Project X _________________
Project Y _________________

3) Based on present value index, which of the two projects should Shilling implement?

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