Montana 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: 
Montana's cost of capital is 12%. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)Required:1) Calculate the present value index for Project X and for Project Y. Round your answer to three decimal places. 2) Indicate whether each of the projects is an acceptable investment. 3) Based on present value
index, which of the two projects should Montana implement?
What will be an ideal response?
1) Present value index for X: $62,000 × 3.604776 ÷ $210,000 = 1.064
Present value index for Y:
[($44,000 × 0.892857) + ($48,000 × 0.797194) + ($60,000 × 0.711780) + ($76,000 × 0.635518) + ($80,000 × 0.567427)] ÷ $210,000 = 1.019
2) Both Project X and Project Y represent acceptable investments because the present value index is greater than 1 (net present value would be greater than zero for each).
3) Project X is preferred because the present value index is higher than for Y.
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