If a company has computed a project profitability index of-0.015 for an investment project, then:
a the project's internal rate of return is greater than thediscount rate.
b the relationship of the internal rate of return and thediscount rate is impossible to determine from the data given.
c the project's internal rate of return is less than the discountrate.
d the project's internal rate of return is equal to the discountrate.
If a company has computed a project profitability index of-0.015 for an investment project, then:
| a | the project's internal rate of return is greater than thediscount rate. |
| b | the relationship of the internal rate of return and thediscount rate is impossible to determine from the data given. |
| c | the project's internal rate of return is less than the discountrate. |
| d | the project's internal rate of return is equal to the discountrate. |
Related questions
Tranter, Inc., is considering a project that would have anine-year life and would require a $4,004,000 investment inequipment. At the end of nine years, the project would terminateand the equipment would have no salvage value. The project wouldprovide net operating income each year as follows: (Ignore incometaxes.) |
| Sales | $ | 3,000,000 | |||
| Variableexpenses | 1,850,000 | ||||
| Contributionmargin | 1,150,000 | ||||
| Fixed expenses: | |||||
| Fixed out-of-pocketcash expenses | $ | 380,000 | |||
| Depreciation | 300,000 | 680,000 | |||
| Net operatingincome | $ | 470,000 | |||
| Click here to view Exhibit13B-2, to determine the appropriate discount factor(s) usingtables. |
All of the above items, except for depreciation, represent cashflows. The company's required rate of return is 11%. |
| Required: | |
| a. | Compute the project's net present value. (Negativeamount should be indicated by a minus sign. Round discountfactor(s) to 3 decimal places, intermediate and final answers tothe nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Net presentvalue | $ |
| b. | Compute the project's internal rate of return. (Rounddiscount factor(s) to 3 decimal places and final answer to theclosest interest rate. Omit the "%" sign in yourresponse.) |
| Internal rate ofreturn | % |
| c. | Compute the project's paybackperiod. (Round your answer to 1 decimalplace.) |
| Payback period | years |
| d. | Compute the project's simplerate of return. (Round your final answer to the closestinterest rate. Omit the "%" sign in your response.) |
| Simple rate ofretuer | % |
My answers, please let me know if they are correct?
#1: 346,400 ( 800000*3.433)-2400000
#2 : 20%
#3: 3 years
#4 : 16.67 = 400,000/2,400,000
Tranter, Inc., is considering a project that would have afive-year life and would require a $2,400,000 investment inequipment. At the end of five years, the project would terminateand the equipment would have no salvage value. The project wouldprovide net operating income each year as follows: (Ignore incometaxes.) |
| Sales | $ | 3,500,000 | |||
| Variableexpenses | 2,100,000 | ||||
| Contributionmargin | 1,400,000 | ||||
| Fixed expenses: | |||||
| Fixed out-of-pocketcash expenses | $ | 600,000 | |||
| Depreciation | 400,000 | 1,000,000 | |||
| Net operatingincome | $ | 400,000 | |||
Click here to view Exhibit 13B-2, to determine the appropriatediscount factor(s) using tables. |
All of the above items, except for depreciation, represent cashflows. The company's required rate of return is 14%. |
| Required: | |||||||
| a. | Compute the project's net present value
| ||||||
