Question

In: Finance

You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...

You are analyzing two proposed capital investments with the following cash flows:

Year Project X Project Y
0 - $20,000 - $20,000
1 13,530 6,370
2 5,960 6,370
3 6,460 6,370
4 1,920 6,370


The cost of capital for both projects is 10 percent.

Calculate the profitability index (PI) for each project. (Do not round discount factors. Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answer to 4 decimal places, e.g. 1.2527.)

The PI for project X is and the PI for project Y is .


Which project, or projects, should be accepted if you have unlimited funds to invest?

If you have unlimited funds you should invest in

project Xneither projectproject Yboth projects

.


Which project should be accepted if they are mutually exclusive?

If they are mutually exclusive you should invest in

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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