Consider the following projects:
Cash Flows, $ Project C0 C1 D â10,200 +20,400 E â20,200 +35,350
Assume that the projects are mutually exclusive and that the opportunity cost of capital is 12%.
a. Calculate the profitability index for each project. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Project Profitability Index D E
b-1. Calculate the profitability-index using the incremental cash flows? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Profitability-index
b-2. Which project should you choose? Project D Project E
| Consider the following projects: |
| Cash Flows, $ | ||
| Project | C0 | C1 |
| D | â10,200 | +20,400 |
| E | â20,200 | +35,350 |
| Assume that the projects are mutually exclusive and that the opportunity cost of capital is 12%. |
| a. | Calculate the profitability index for each project. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Project | Profitability Index | |
| D | ||
| E | ||
| b-1. | Calculate the profitability-index using the incremental cash flows? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Profitability-index |
| b-2. | Which project should you choose? | ||||
|
Related questions
Consider the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) | ||
| 0 | â$ | 423,000 | â$ | 39,000 |
| 1 | 45,000 | 20,200 | ||
| 2 | 61,000 | 13,500 | ||
| 3 | 78,000 | 17,600 | ||
| 4 | 538,000 | 14,400 | ||
The required return on these investments is 14 percent.
a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
| Payback period | ||
| Project A | years | |
| Project B | years | |
b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
| Net present value | ||
| Project A | $ | |
| Project B | $ | |
c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
| Internal rate of return | ||
| Project A | $ | |
| Project B | $ | |
d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
| Profitability index | ||
| Project A | ||
| Project B | ||
e. Based on your answers in (a) through (d), which project will you finally choose?
The Sloan Corporation is trying to choose between the following two mutually exclusive design projects:
| Year | Cash Flow (I) | Cash Flow (II) | |||||
| 0 | â$ | 55,000 | â$ | 18,900 | |||
| 1 | 25,000 | 10,150 | |||||
| 2 | 25,000 | 10,150 | |||||
| 3 | 25,000 | 10,150 | |||||
| a-1 | If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations. Round your answers to 3 decimal places, e.g., 32.161.) |
| Profitability Index | ||
| Project I | ||
| Project II | ||
| a-2 | If the company applies the profitability index decision rule, which project should the firm accept? | ||||
|
| b-1 | What is the NPV for both projects? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| NPV | ||
| Project I | $ | |
| Project II | $ | |
| b-2 | If the company applies the NPV decision rule, which project should it take? | ||||
|
| The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: |
| Year | Cash Flow (I) | Cash Flow (II) | |||||
| 0 | â$ | 56,000 | â$ | 18,800 | |||
| 1 | 26,000 | 10,100 | |||||
| 2 | 26,000 | 10,100 | |||||
| 3 | 26,000 | 10,100 | |||||
| a-1 | If the required return is 12 percent, what is the profitability index for both projects? (Do not round intermediate calculations. Round your answers to 3 decimal places, e.g., 32.161.) |
| Profitability Index | ||
| Project I | ||
| Project II | ||
| a-2 | If the company applies the profitability index decision rule, which project should the firm accept? | ||||
|
| b-1 | What is the NPV for both projects? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| NPV | ||
| Project I | $ | |
| Project II | $ | |
| b-2 | If the company applies the NPV decision rule, which project should it take? | ||||
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