Question
In: Finance
You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate...
You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate of 13 percent. Use Appendix B.
|
Project X (DVDs |
Project Y (Slow-Motion |
|||||||||
| Year | Cash Flow | Year | Cash Flow | |||||||
| 1 | $9,000 | 1 | $19,000 | |||||||
| 2 | 7,000 | 2 | 12,000 | |||||||
| 3 | 8,000 | 3 | 13,000 | |||||||
| 4 | 7,600 | 4 | 15,000 | |||||||
a. Calculate the profitability index for project X. (Round "PV Factor" to 3 decimal places. Round the final answer to 2 decimal places.)
PI
b. Calculate the profitability index for project Y. (Round "PV Factor" to 3 decimal places. Round the final answer to 2 decimal places.)
PI
c. Using the NPV method combined with the PI approach, which project would you select? Use a discount rate of 13 percent.
-
Project Y
-
Project X
Solutions
Expert Solution
NPV = PV of Cash Inflwos - PV of Cash outflows
PI = PV of Cash inflwos / PV of Cash Outflows
PI Project X:
| Year | CF | PVF @13% | Disc CF |
| 1 | $9,000.00 | 0.8850 | $ 7,964.60 |
| 2 | $7,000.00 | 0.7831 | $ 5,482.03 |
| 3 | $8,000.00 | 0.6931 | $ 5,544.40 |
| 4 | $7,600.00 | 0.6133 | $ 4,661.22 |
| PV of Cash Inflows | $23,652.25 | ||
| PV of Cash Outflows | $18,000.00 | ||
| PI | 1.31 |
PI Project Y:
| Year | CF | PVF @13% | Disc CF |
| 1 | $19,000.00 | 0.8850 | $16,814.16 |
| 2 | $12,000.00 | 0.7831 | $ 9,397.76 |
| 3 | $13,000.00 | 0.6931 | $ 9,009.65 |
| 4 | $15,000.00 | 0.6133 | $ 9,199.78 |
| PV of Cash Inflows | $44,421.35 | ||
| PV of Cash Outflows | $38,000.00 | ||
| PI | 1.17 |
NPV :
Project X:
| Year | CF | PVF @13% | Disc CF |
| 1 | $9,000.00 | 0.8850 | $ 7,964.60 |
| 2 | $7,000.00 | 0.7831 | $ 5,482.03 |
| 3 | $8,000.00 | 0.6931 | $ 5,544.40 |
| 4 | $7,600.00 | 0.6133 | $ 4,661.22 |
| PV of Cash Inflows | $23,652.25 | ||
| PV of Cash Outflows | $18,000.00 | ||
| NPV | 5,652.25 |
Project Y:
| Year | CF | PVF @13% | Disc CF |
| 1 | $19,000.00 | 0.8850 | $16,814.16 |
| 2 | $12,000.00 | 0.7831 | $ 9,397.76 |
| 3 | $13,000.00 | 0.6931 | $ 9,009.65 |
| 4 | $15,000.00 | 0.6133 | $ 9,199.78 |
| PV of Cash Inflows | $44,421.35 | ||
| PV of Cash Outflows | $38,000.00 | ||
| NPV | 6,421.35 |
| Particular | Project X | Project Y | Selected |
| PI | 1.31 | 1.17 | Project X |
| NPV | $5,652.25 | $ 6,421.35 | Project Y |
Plz comment, if any further assistance is required
jeff jeffy answered 3 years agoRelated Solutions
You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate...
You are asked to evaluate the following two projects for Boring
Corporation. Use a discount rate of 12 percent. Use Appendix B.
Project X (DVDs
of the Weather Reports)
($16,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($36,000 Investment)
Year
Cash Flow
Year
Cash Flow
1
$8,000
1
$18,000
2
6,000
2
11,000
3
7,000
3
12,000
4
6,600
4
14,000
a. Calculate the profitability index for
project X. (Round "PV Factor" to 3 decimal places. Round
the final...
You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate...
You are asked to evaluate the following two projects for Boring
Corporation. Use a discount rate of 12 percent. Use Appendix B.
Project X (DVDs
of the Weather Reports)
($36,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($56,000 Investment)
Year
Cash Flow
Year
Cash Flow
1
$18,000
1
$28,000
2
16,000
2
21,000
3
17,000
3
22,000
4
16,600
4
24,000
a. Calculate the profitability index for
project X. (Round "PV Factor" to 3 decimal places. Round
the final...
You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate...
You are asked to evaluate the following two projects for Boring
Corporation. Use a discount rate of 15 percent. Use Appendix B.
Project X (DVDs of the Weather Reports)
($46,000 Investment)
Year
Cash Flow
1
23,000
2
21,000
3
22,000
4
21,000
Project Y (Slow-Motion Replays of Commercials)
($66,000 Investment)
Year
Cash Flow
1
33,000
2
26,000
3
27,000
4
29,000
a. Calculate the profitability index for project X. (Round "PV
Factor" to 3 decimal places. Round the final answer...
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 14 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)
($54,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($74,000 Investment)
Year
Cash Flow
Year
Cash Flow
1
$
27,000
1
$
37,000
2
25,000
2
30,000
3
25,000
3
31,000
4
23,600
4
33,000...
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 14 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) ($20,000 Investment) Project Y (Slow-Motion
Replays of Commercials) ($40,000 Investment) Year Cash Flow Year
Cash Flow 1 $ 10,000 1 $ 20,000 2 8,000 2 13,000 3 9,000 3 14,000 4
8,600 4 16,000...
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 12 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)
($48,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($68,000 Investment)
Year
Cash Flow
Year
Cash Flow
1
$
24,000
1
$
34,000
2
22,000
2
27,000
3
23,000
3
28,000
4
22,600
4
30,000...
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 11 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)
($38,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($58,000 Investment)
Year
Cash Flow
Year
Cash Flow
1
$
19,000
1
$
29,000
2
17,000
2
22,000
3
18,000
3
23,000
4
17,600
4
25,000...
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 14 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)
($46,000 Investment)
Project Y (Slow-Motion
Replays of Commercials)
($66,000 Investment)
Year
Cash Flow
Year
Cash Flow
1
$
23,000
1
$
33,000
2
21,000
2
26,000
3
22,000
3
27,000
4
21,600
4
29,000
You have been asked to estimate the appropriate discount rate to use in the evaluation of...
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Market Value
Bonds
350,000
Preferred Stock
200,000
Common Stock
450,000
To finance the new project, the company will sell:
12-year bonds with a $1,000 par value paying 8% per year (paid
semiannually) at the market price of $980.
Preferred stock paying a...
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use in the evaluation of a new line of business. You have
determined the market value of the firm’s target capital structure
as follows:
Source of Capital
Market Value
Bonds
350,000
Preferred Stock
200,000
Common Stock
450,000
To finance the new project, the company will sell:
12-year bonds with a $1,000 par value paying 8% per year (paid
semiannually) at the market price of $980.
Preferred stock paying a...
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