Question

Suppose the following two independent investment opportunities
are available to Greene, Inc. The appropriate discount rate is 12
percent.

Year | Project Alpha | Project Beta | |||||

0 | ?$ | 5,300 | ?$ | 6,900 | |||

1 | 2,700 | 1,550 | |||||

2 | 2,600 | 5,300 | |||||

3 | 1,650 | 4,400 |

a. Compute the profitability index for each of the two projects.

Profitability Index | |

Project Alpha | |

Project Beta b. Which project(s) should the company accept based on the
profitability index rule? -Project Beta -Project Alpha -Neither project -Both projects |

Answer #1

Suppose the following two independent investment opportunities
are available to Greene, Inc. The appropriate discount rate is 12
percent.
Year
Project Alpha
Project Beta
0
−$
4,300
−$
5,900
1
2,200
1,300
2
2,100
4,300
3
1,400
3,900
Compute the profitability index for each of the two projects.
(Do not round intermediate calculations and round your
answers to 3 decimal places, e.g., 32.161.)
Profitability Index
Project Alpha
Project Beta
Which project(s) should the company accept based on the
profitability index...

Suppose the following two independent investment opportunities
are available to Relax, Inc. The appropriate discount rate is 8
percent.
Year, Project Alpha, Project Beta
0 ?$3,500 ?$5,100
1 1,800 1,100
2 1,700 3,500
3 1,200 3,500
a. Compute the profitability index for each of the two projects.
(Do not round intermediate calculations and round your answers to 3
decimal places, e.g., 32.161.) Profitability Index
Project Alpha
Project Beta
b. Which project should the company accept based on the
profitability index...

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(570,000
)
$
(500,000
)
$
(370,000
)
$
(340,000
)
Present value of cash inflows at a 11% discount rate
603,219
584,233
385,015
366,546
Net present value
$
33,219
$
84,233
$
15,015
$
26,546
Life of the project
6 years
12 years
6 years
3 years
Internal rate of return...

The management of Revco Products is exploring five different
investment opportunities. Information on the five projects under
study follows:
Project Number
1
2
3
4
5
Investment required
$
(264,000
)
$
(435,000
)
$
(418,000
)
$
(364,000
)
$
(500,000
)
Present value of cash inflows at a 10%
discount rate
334,640
510,970
398,360
444,600
579,200
Net present value
$
70,640
$
75,970
$
(19,640
)
$
80,600
$
79,200
Life of the project
6 years
3 years...

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(550,000
)
$
(500,000
)
$
(400,000
)
$
(520,000
)
Present value of cash inflows at a 11% discount
rate
617,520
664,110
463,140
628,320
Net
present value
$
67,520
$
164,110
$
63,140
$
108,320
Life
of the project
8 years
16 years
8 years
5 years
Internal rate of...

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(560,000
)
$
(510,000
)
$
(410,000
)
$
(350,000
)
Present value of cash inflows at
a 11% discount rate
592,636
577,822
452,691
440,021
Net present value
$
32,636
$
67,822
$
42,691
$
90,021
Life of the project
6 years
12 years
6 years
3 years
Internal rate of return...

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(450,000
)
$
(540,000
)
$
(390,000
)
$
(340,000
)
Present value of cash inflows at
a 8% discount rate
549,775
715,947
416,102
399,353
Net present value
$
99,775
$
175,947
$
26,102
$
59,353
Life of the project
6 years
12 years
6 years
3 years
Internal rate of return...

Anne is considering two independent projects with 2-year lives.
Both projects have been assigned a discount rate of 13 percent. She
has sufficient funds to finance one or both projects. Project A
costs $38,500 and has cash flows of $19,400 and $28,700 for Years 1
and 2, respectively. Project B costs $41,000, and has cash flows of
$25,000 and $22,000 for Years 1 and 2, respectively. Which project,
or projects, if either, should you accept based on the
profitability index...

The treasurer of Amaro Canned Fruits, Inc., has projected the
cash flows of projects A, B, and C as follows:
Year
Project A
Project B
Project C
0
?
$
180,000
?
$
345,000
?
$
180,000
1
119,000
218,000
129,000
2
119,000
218,000
99,000
Suppose the relevant discount rate is 12 percent per year.
a. Compute the profitability index for each of the
three projects. (Do not round intermediate calculations.
Round your answers to 2 decimal places,...

Questions 13-16 refer to the following information.
There are two independent investment projects for the
Galactic Empire. Project A (build TIE Fighters) costs the Empire
$300,000 to set up, and it will provide annual cash inflows of
$70,000 for 7 years. Project B (build Death Star) costs the Empire
$1,000,000 to set up, and it will provide annual cash inflows of
$255,000 for 6 years. The Empire’s cost of capital (i.e., the
required return on investment) is 10% annually, and...

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