1. Based on the profitability index rule, should a project with
the following cash flows be...
1. Based on the profitability index rule, should a project with
the following cash flows be accepted if the discount rate is 12
percent? Why or why not?
Year
Year
Cash Flow
0
$-26,200
1
$11,800
2
$0
3
$24,900
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Calculating Profitability Index What is the
profitability index for the following set of cash flows if the
relevant discount rate is 10 percent? What if the discount rate is
15 percent? If it is 22 percent?
Year
Cash Flow
0
−$29,500
1
16,900
2
13,600
3
8,300
Find the profitability index of a project with the following
cash flows using a discount rate of 2%:
Period 0: -1000
Period 1: 707
Period 2: 398
Period 3: 291
Enter your answer in a decimal and round to the hundredths
place.
What is the profitability index of a project that costs $8,000
and provides cash flows of $2,100 in years 1 and 2 and $4,100 in
years 3 and 4? The discount rate is 10%. (Do not round
intermediate calculations. Round your answer to 4 decimal
places.)
Profitability index
Estimating the cash flow generated by $1 invested in a
project
The profitability index (PI) is a capital budgeting tool that is
defined as the present value of a project’s cash inflows divided by
the absolute value of its initial cash outflow. Consider this
case:
Happy Dog Soap Company is considering investing $2,225,000 in a
project that is expected to generate the following net cash
flows:
Year
Cash Flow
Year 1
$275,000
Year 2
$500,000
Year 3
$450,000...
7.) What is the profitability index for the following set of
cash flows if the relevant discount rate is 10 percent? What if the
discount rate is 15 percent? If it is 22 percent?
Year
Cash Flow
0
?$15,300
1
9,400
2
7,600
3
4,300
What is the profitability index for an investment with the
following cash flows given a 9% required return?
Year Cash flow
0 -21,000
1 7,400
2 9,800
3 8,900
0.98
0.96
1.00
1.04
What is the profitability index for an investment with the
following cash flows given a 8 percent required return?
Year
Cash Flow
0
$-20,500
1
$7,100
2
$9,700
3
$8,500
1.06
1.07
1.04
1.00
1.01
What is profitability Index? Given the discount rates and the
future cash flows of each project, which project should they accept
using Profitability Index?
Cash Flows
Project A
Project B
Project C
Project D
Year Zero
- $ 1,500,000
- $ 1,500,000
- $ 2,000,000
- $ 2,000,000
Year One
$ 350,000
$ 400,000
$ 700,000
$ 200,000
Year Two
$ 350,000
$ 400,000
$ 600,000
$ 400,000
Year Three
$ 350,000
$ 400,000
$ 500,000
$ 600,000
Year Four...
11. Profitability index
Estimating the cash flow generated by $1 invested in a
project
The profitability index (PI) is a capital budgeting tool that is
defined as the present value of a project’s cash inflows divided by
the absolute value of its initial cash outflow. Consider this
case:
Purple Whale Foodstuffs is considering investing $2,750,000 in a
project that is expected to generate the following net cash
flows:
Year
Cash Flow
Year 1
$350,000
Year 2
$500,000
Year 3
$425,000...
9. Profitability index Estimating the cash flow generated by $1
invested in a project The profitability index (PI) is a capital
budgeting tool that is defined as the present value of a project’s
cash inflows divided by the absolute value of its initial cash
outflow. Consider this case: Happy Dog Soap Company is considering
investing $2,750,000 in a project that is expected to generate the
following net cash flows: Year Cash Flow Year 1 $275,000 Year 2
$500,000 Year 3...