Question
In: Finance
The following projects are under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate...
The following projects are under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate of return on projects of this nature.
Project A: CF0 = -$90,000; CF1-CF6 = +$25,000
Project B: CF0 = -$200,000; CF1-CF3 = +$90,000
What is the Profitability Index of project A?
Group of answer choices
1.08
1.35
1.50
1.67
1.04
Solutions
Expert Solution
Ans 1.08
| Year | Project Cash Flows (i) | DF@ 14% | DF@ 14% (ii) | PV of Project ( (i) * (ii) ) |
| 1 | 25000 | 1/((1+14%)^1) | 0.877193 | 21,929.82 |
| 2 | 25000 | 1/((1+14%)^2) | 0.769468 | 19,236.69 |
| 3 | 25000 | 1/((1+14%)^3) | 0.674972 | 16,874.29 |
| 4 | 25000 | 1/((1+14%)^4) | 0.592080 | 14,802.01 |
| 5 | 25000 | 1/((1+14%)^5) | 0.519369 | 12,984.22 |
| 6 | 25000 | 1/((1+14%)^6) | 0.455587 | 11,389.66 |
| PV | 97,216.69 | |||
| Total of PV of Cash Inflows | 97216.69 | |||
| Cash Outflows | 90000 | |||
| Profitability Index = | 1.08 | |||
| Present value of cash Inflow / Initial Investment (Cash Outflows) | (97216.69 / 90000) |
jeff jeffy answered 1 year agoRelated Solutions
The following projects are under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate...
The following projects are under consideration by Smith's Food
Markets, Inc. Smith's requires a 14% rate of return on projects of
this nature.
Project A: CF0 = -$90,000;
CF1-CF6 = +$25,000
Project B: CF0 = -$200,000;
CF1-CF3 = +$90,000
What is the NPV of project B?
Group of answer choices
$7,217
$70,000
$8,947
$16,164
$60,000
What is the IRR of project B?
Group of answer choices
22.50%
27.78%
16.88%
45.00%
16.65%
The following projects are under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate...
The following projects are under consideration by Smith's Food
Markets, Inc. Smith's requires a 14% rate of return on projects of
this nature.
Project A: CF0 = -$90,000;
CF1-CF6 = +$25,000
Project B: CF0 = -$200,000;
CF1-CF3 = +$90,000
What is the Profitability Index of project A?
Group of answer choices
1.08
1.35
1.50
1.67
1.04
The following project is under consideration by Riviera Holdings Corp. Riviera's requires a 15% rate of...
The following project is under consideration by Riviera Holdings
Corp. Riviera's requires a 15% rate of return on projects of this
nature.
CF0: -$17,000,000
CF1: +$10,000,000
CF2: +$8,000,000
CF3: +$4,000,000
CF4: +$6,000,000
What is the net present value of the project?
What is the profitability index of the project?
The following project is under consideration by Riviera Holdings Corp. Riviera's requires a 15% rate of...
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Corp. Riviera's requires a 15% rate of return on projects of this
nature.
CF0: -$17,000,000
CF1: +$10,000,000
CF2: +$8,000,000
CF3: +$4,000,000
CF4: +$6,000,000
What is the net present value of the project?
What is the profitability index of the project?
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