Question
In: Finance
A machine costs $10,000 and has a discount rate of 7.5%. Calculate the profitability index of...
A machine costs $10,000 and has a discount rate of 7.5%.
Calculate the profitability index of the project if the net present
value of cash inflows is $4,600 in year 1, $3,400 in year 2, $2,600
in year 3, and $1,500 in year 4 when the machine is sold to salvage
dealer.
A. 2.38
B. 2.21
C. 2.04
D. 1.21
E. 1.04
. A project costs $6,000 and has a discount rate of 7.5%. Calculate
the profitability index of the project that has cash flows of
$5,200 in year 1 and $4,500 in year 2.
A. 1.62
B. 1.14
C. 1.80
D. 1.46
E. 1.14
A project costs $15,350 and has a discount rate of 8.5%. Calculate
the profitability index of the project that has cash flows of
$3,500 in years 1 and 2, $4,000 in year 3, $3,200 in year 4 and
$2,800 in year 5.
A. 0.88
B. 0.75
C. 0.24
D. 0.12
E. 1.28
Solutions
Expert Solution
| Ans 1 | year | Present value of cash flow | ||||
| 0 | -10000 | |||||
| 1 | 4600 | |||||
| 2 | 3400 | |||||
| 3 | 2600 | |||||
| 4 | 1500 | |||||
| 2100 | ||||||
| Net present value = | 2100 | |||||
| profitability index = | =1+2100/10000 | |||||
| 1.21 | ||||||
| Answer = option D | 1.21 | |||||
| Ans 2 | ||||||
| i | ii | iii | iv=ii*iii | |||
| year | Cash flow | PVIF @ 7.5% | present value of cash flow | |||
| 0 | -6000 | 1.0000 | (6,000) | |||
| 1 | 5200 | 0.9302 | 4,837 | |||
| 2 | 4500 | 0.8653 | 3,894 | |||
| NPV = | 2,731 | |||||
| Therefore PI = | 1+2731/6000 | |||||
| 1.46 | ||||||
| Ans =option D | 1.46 | |||||
| Ans 3 | ||||||
| i | ii | iii | iv=ii*iii | |||
| year | Cash flow | PVIF @ 8.5% | present value of cash flow | |||
| 0 | -15350 | 1.0000 | (15,350) | |||
| 1 | 3500 | 0.9217 | 3,226 | |||
| 2 | 3500 | 0.8495 | 2,973 | |||
| 3 | 4000 | 0.7829 | 3,132 | |||
| 4 | 3200 | 0.7216 | 2,309 | |||
| 5 | 2800 | 0.6650 | 1,862 | |||
| NPV = | (1,848) | |||||
| PI = | =1-1848/15230 | |||||
| 0.88 | ||||||
| Ans =Option A= | 0.88 | |||||
| Ans 1 | year | Present vlaue of cash flow | ||||
| 0 | -10000 | |||||
| 1 | 4600 | |||||
| 2 | 3400 | |||||
| 3 | 2600 | |||||
| 4 | 1500 | |||||
| 2100 | ||||||
| Net present value = | 2100 | |||||
| profitability index = | =1+2100/10000 | |||||
| 1.21 | ||||||
| Answer = option D | 1.21 | |||||
| Ans 2 | ||||||
| i | ii | iii | iv=ii*iii | |||
| year | Cash flow | PVIF @ 7.5% | present value of cash flow | |||
| 0 | -6000 | 1.0000 | (6,000) | |||
| 1 | 5200 | 0.9302 | 4,837 | |||
| 2 | 4500 | 0.8653 | 3,894 | |||
| NPV = | 2,731 | |||||
| Therefore PI = | 1+2731/6000 | |||||
| 1.46 | ||||||
| Ans =option D | 1.46 | |||||
| Ans 3 | ||||||
| i | ii | iii | iv=ii*iii | |||
| year | Cash flow | PVIF @ 8.5% | present value of cash flow | |||
| 0 | -15350 | 1.0000 | (15,350) | |||
| 1 | 3500 | 0.9217 | 3,226 | |||
| 2 | 3500 | 0.8495 | 2,973 | |||
| 3 | 4000 | 0.7829 | 3,132 | |||
| 4 | 3200 | 0.7216 | 2,309 | |||
| 5 | 2800 | 0.6650 | 1,862 | |||
| NPV = | (1,848) | |||||
| PI = | =1-1848/15230 | |||||
| 0.88 | ||||||
| Ans =Option A= | 0.88 | |||||
jeff jeffy answered 3 months agoRelated Solutions
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Year Three
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$ 600,000
Year Four...
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