Question
The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A, B,...
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, e.g., 32.16.)
| Profitability index | |
| Project A | |
| Project B | |
| Project C | |
b. Compute the NPV for each of the three projects. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
| NPV | ||
| Project A | $ | |
| Project B | $ | |
| Project C | $ | |
c. Suppose these three projects are
independent. Which project(s) should Amaro accept based on the
profitability index rule?
| Project A | |
| Project B | |
| Project C | |
| Project A, Project B, Project C | |
| Project A, Project B | |
| Project A, Project C | |
| Project B, Project C |
d. Suppose these three projects are mutually
exclusive. Which project(s) should Amaro accept based on the
profitability index rule?
| Project A | |
| Project B | |
| Project C | |
| Project A, Project B, Project C | |
| Project A, Project B | |
| Project A, Project C | |
| Project B, Project C |
e. Suppose Amaro’s budget for these projects is
$525,000. The projects are not divisible. Which project(s) should
Amaro accept?
| Project A | |
| Project B | |
| Project C | |
| Project A, Project B, Project C | |
| Project B, Project C | |
| Project B, Project A | |
| Project A, Project C |
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