Question

Use the following information to answer the next two questions. The following project is under consideration...

Use the following information to answer the next two questions. The following project is under consideration by Riviera Holdings Corp. Riviera's requires a 13% rate of return on projects of this nature.

Year 0: Cash Flow -$17,000,000

Year 1: Cash Flow +$10,000,000

Year 2: Cash Flow +$8,000,000

Year 3: Cash Flow +$4,000,000

Year 4: Cash Flow +$6,000,000

What is the profitability index of the project?

a. 1.36

b. 1.30

c. 1.22

d. 1.65

e. 1.27

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer e.1.27

Profitability Index = Present Value of Future cash flow / Initial Investment Required

= $21,568,400 / $17,000,000

=1.27

Calculation of present value of Future cash flow

Year Cashflow DF @ 13% PV
1 $    10,000,000 0.8850 $    8,850,000
2 $      8,000,000 0.7832 $    6,265,600
3 $      4,000,000 0.6931 $    2,772,400
4 $      6,000,000 0.6134 $    3,680,400
PV of future cash flow $ 21,568,400
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Use the following information to answer the next two questions. The following project is under consideration...
Use the following information to answer the next two questions. The following project is under consideration by Riviera Holdings Corp. Riviera's requires a 13% rate of return on projects of this nature. Year 0: Cash Flow -$17,000,000 Year 1: Cash Flow +$10,000,000 Year 2: Cash Flow +$8,000,000 Year 3: Cash Flow +$4,000,000 Year 4: Cash Flow +$6,000,000 What is the net present value of the project? a. $ 3.81M b. $ 4.38M c. $ 5.16M d. $11.00M e. $ 4.57M
The following project is under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate...
The following project is under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate of return on projects of this nature. Cost Year 0 = -$200,000 Cash Flows Years 1-3: +$90,000 What is the Profitability Index of the project? a. 1.50 b. 1.67 c. 1.08 d. 1.35 e. 1.04
The following project is under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate...
The following project is under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate of return on projects of this nature. Cost Year 0 = -$200,000 Cash Flows Years 1-3: +$90,000 What is the Profitability Index of the project? Group of answer choices a. 1.50 b. 1.67 c. 1.08 d. 1.35 e. 1.04
You are considering the following two mutually exclusive projects with the following cash flows:                           &nbsp
You are considering the following two mutually exclusive projects with the following cash flows:                                                                                  Project A                                  Project B                                                             Year    Cash Flow                   Year    Cash Flow                                                             0          -$75,000                         0       -$70,000                                                             1          $19,000                         1       $10,000                                                             2          $48,000                         2       $16,000                                                             3          $12,000                         3       $72,000                        Required rate of return                     10 %                                        13 %                             Calculate the NPV, IRR,...
You are asked to evaluate the following two projects for the Norton corporation. Use a discount...
You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 13 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Project X (Videotapes of the Weather Report) ($44,000 Investment) Project Y (Slow-Motion Replays of Commercials) ($64,000 Investment) Year Cash Flow Year Cash Flow 1 $ 22,000 1 $ 32,000 2 20,000 2 25,000 3 21,000 3 26,000 4 20,600 4 28,000...
A firm evaluates all of its projects by applying the IRR rule. A project under consideration...
A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:     Year Cash Flow 0 –$ 28,100 1 12,100 2 15,100 3 11,100    If the required return is 15 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Adidas management team is considering two projects, a golf club project and a helmet project. WACC...
Adidas management team is considering two projects, a golf club project and a helmet project. WACC = 9.3% Adidas: % of debt in capital structure 25% % of equity in capital structure 75% Before-tax required cost of debt 6% Tax rate 30% Cost of equity 11% B. Capital Budgeting Project information: Golf club project           Helmet project Upfront costs                           (10,000,000)                (8,000,000) Annual cash flows Year 1                     $0                    $3,000,000 Year 2                                                  $0                    $3,000,000 Year...
Nike's management team is considering two projects, a golf club project and a helmet project. A....
Nike's management team is considering two projects, a golf club project and a helmet project. A. Using the table below, calculate firm’s weighted average cost of capital: Nike: % of debt in capital structure 25% % of equity in capital structure 75% Before-tax required cost of debt 6% Tax rate 30% Cost of equity 11% B. Capital Budgeting Project information: Golf club project Helmet project Upfront costs (10,000,000) (8,000,000) Annual cash flows Year 1 $0 $3,000,000 Year 2 $0 $3,000,000...
You are asked to evaluate the following two projects for the Norton corporation. Use a discount...
You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 10 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Project X (Videotapes of the Weather Report) ($14,000 Investment Project Y (Slow-Motion Replays of Commercials) ($34,000 Investment) Year Cash Flow Year Cash Flow 1 $7,000 1 $17,000 2 $5,000 2 $10,000 3 $6,000 3 $11,000 4 $5,600 4 $13,000 a. Calculate...
A firm evaluates all of its projects by applying the IRR rule. A project under consideration...
A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:     Year Cash Flow 0 –$ 28,700 1 12,700 2 15,700 3 11,700    If the required return is 15 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)    Should the firm accept the project? Yes No
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT