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 Profitability Index of project A?
Group of answer choices
1.08
1.35
1.50
1.67
1.04
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 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...
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?
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