Question

Hanmi Group, a consumer electronics conglomerate, is reviewing its annual budget in wireless technology. It is considering investments in three different technologies to develop wireless communication devices. Consider the following cash flows of the three independent projects available to the company. Assume the discount rate for all projects is 12 percent. Further, the company has only $25 million to invest in new projects this year.

  

Cash Flows (in $ millions)

Year	CDMA			G4			Wi-Fi
0	–$	6		–$	19		–$	25
1		10			17			23
2		6.5			32			37
3		3.5			25			25

   

a.	Calculate the profitability index for each investment. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

	Profitability index
CDMA
G4
Wi-Fi

    

b.	Calculate the NPV for each investment. (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

    

	NPV
CDMA	$
G4	$
Wi-Fi	$

Answer 1

As per calculation made into excel sheet attached herewith,
a) Profitability Index or PI
In CDMA = 1.77
In G4 = 2.08
In Wi Fi = 1.71

b) NPV for Each projects
In CDMA = $10.60 Millions
In G4 = $39.48 Millions
In Wi Fi = $42.83 Millions