Question

# 1. What is the profitability index of a project that has an initial cash outflow of...

1. What is the profitability index of a project that has an initial cash outflow of \$550, an inflow of \$230 for the next 3 years and a cost of capital of 8 percent?

 A. 0.667 B. 1.765 C. 1.078 D. 2.739

2.

What is the NPV for a project whose cost of capital is 12 percent and initial after-tax cost is \$5,000,000 and is expected to provide after-tax operating cash inflows of \$1,600,000 in year 1, \$1,900,000 in year 2, \$1,700,000 in year 3, and \$1,500,000 in year 4?

 A. \$106,543 B. -\$196,615 C. -\$137,053 D. \$4,862,947

1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=230/1.08+230/1.08^2+230/1.08^3

=592.732307

PI=Present value of inflows/Present value of outflows

=592.732307/550

=1.078(Approx)

2.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=1,600,000/1.12+1,900,000/1.12^2+1,700,000/1.12^3+1,500,000/1.12^4

=5106543.33

NPV=Present value of inflows-Present value of outflows

=5106543.33-5,000,000

=\$106543(Approx).

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