Coore Manufacturing has the following two possible projects. The required return is 12 percent. Year Project...

Coore Manufacturing has the following two possible projects. The required return is 12 percent.

Year	Project Y	Project Z
0	–$82,000	–$81,000
1	31,160	34,000
2	31,160	32,800
3	31,160	30,500
4	31,160	27,300


a.	What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
b.	What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c.	Which, if either, of the projects should the company accept?

Expert Solution

Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 12% and t is the time period in years.
Profitability index (PI) = (Sum of present values of future cash flows/Initial investment)
Net present value (NPV) = initial investment + sum of present values of future cash flows.

PROJECT Y
Year	0	1	2	3	4
cash flow	-82000	31160	31160	31160	31160
present value		27821.43	24840.56	22179.07	19802.74
PI	1.154193
NPV	12643.81

PROJECT Z
Year	0	1	2	3	4
cash flow	-81000	34000	32800	30500	27300
present value		30357.14	26147.96	21709.3	17349.64
PI	1.179803
NPV	14564.04

a) The profitability index for project Y is 1.154 and the profitability index
for project Z is 1.179.

b) The NPV for Project Y is $12643.81 and the NPV for project Z is $14564.04.

c) The company should accept project Z because it has a higher PI and a higher NPV.

jeff jeffy answered 1 year ago

You are considering two independent projects that have a required return of 15 percent. Project A...

You are considering two independent projects that have a required return of 15 percent. Project A has an initial cost of $198,700 and cash inflows of $67,200, $109,600, and $88,700 for years 1 to 3 respectively. Project B has an initial cost of $102,000 and cash inflows of $37,600 and $91,200 for years 1 and 2, respectively. Given this information, which one of the following statements is correct based on the NPV and IRR methods of analysis? You should accept...

You are considering two independent projects. The required rate of return is 13.75 percent for Project...

You are considering two independent projects. The required rate of return is 13.75 percent for Project A and 14.25 percent for Project B. Project A has an initial cost of $51,400 and cash inflows of $21,400, $24,900, and $22,200 for Years 1 to 3, respectively. Project B has an initial cost of $38,300 and cash inflows of $23,000 a year for 2 years. Which project(s), if either, should you accept? Accept both A and B Reject both A and B...

You are considering the following two mutually exclusive projects. The required return on each project is...

You are considering the following two mutually exclusive projects. The required return on each project is 14 percent. Which project should you accept and what is the best reason for that decision? Year Project A Project B 0 −$ 24,000 −$ 21,000 1 9,500 6,500 2 16,200 9,800 3 8,700 15,200 Project A; because it pays back faster Project A; because it has the higher profitability index Incorrect Project B; because it has the higher profitability index Project B; because...

5. You are considering two independent projects. The required return for both projects is 13 percent....

5. You are considering two independent projects. The required return for both projects is 13 percent. Project A has an initial cost of $145,000 and cash inflows of $62,000, $53,000, and $70,000 for Years 1 to 3, respectively. Project B has an initial cost of $95,000 and cash inflows of $40,000, $44,000, and $35,000 for Years 1 to 3, respectively. Given this information, which one of the following statements is correct based on the NPV and IRR methods of analysis?...

A) Consider the following investment project with a required return of 10 percent: Year Cash Flows...

A) Consider the following investment project with a required return of 10 percent: Year Cash Flows 0 -51652 1 14891 2 13845 3 13942 4 14886 What is the payback period for this project? (Round your answers to 2 decimal places. (e.g., 32.16)) B) An investment has an installed cost of $52572. The cash flows over the four-year life of the investment are projected to be $20399, $23594, $20582, and $11317. If the discount rate is zero, what is the...

You are considering two independent projects that have differing requirements. Project A has a required return...

You are considering two independent projects that have differing requirements. Project A has a required return of 12 percent compared to Project B's required return of 13.5 percent. Project A costs $75,000 and has cash flows of $21,000, $49,000, and $12,000 for Years 1 to 3, respectively. Project B has an initial cost of $70,000 and cash flows of $15,000, $18,000, and $41,000 for Years 1 to 3, respectively. Based on the NPV, you should:

A company is considering two mutually exclusive projects, the company’s required return is 8 percent and...

A company is considering two mutually exclusive projects, the company’s required return is 8 percent and they do not have any capital constraints. Based on the profitability index, what is your recommendation concerning these projects? Project A Project B Year Cash Flow Year Cash Flow 0 -$38,500 0 -$42,000 1 $20,000 1 $10,000 2 $24,000 2 $40,000 Neither project is acceptable. You should accept both projects since both of their PIs are greater than 1. You should accept project A since it has the higher PI. You should accept...

Consider the following two mutually exclusive project. Relevant discount rate for both projects are 12 percent....

Consider the following two mutually exclusive project. Relevant discount rate for both projects are 12 percent. Year CF Project A (Rp) CF Project B (Rp) 0 (2,000,000) (2,300,000) 1 900,000 550,000 2 800,000 650,000 3 950,000 708,000 4 978,000 1,155,000 5 300,000 2,000,000 a. If you apply the discounted payback criterion, which project will you choose? Why? b. If you apply the IRR criterion, which project will you choose? Why? Hint: Range A: 29-31% ; Range B: 24-26% c. If...

Proka is evaluating two projects for investment purposes. The required return for each project is 8...

Proka is evaluating two projects for investment purposes. The required return for each project is 8 percent and the cash flows are listed below: YEar Project A Project B Cash flow in $ Cash Flow in $ 1 100 300 2 400 400 3 400 400 4 400 400 5 300 100 1. Calculate the net present value for each stream 2. Calculate the net present value of each cash flow stream at 0 percent discount rat

Garage, Inc., has identified the following two mutually exclusive projects. The required rate of return on...

Garage, Inc., has identified the following two mutually exclusive projects. The required rate of return on both projects is 12%. Which project should the company choose and why? Year Cash Flow (A) Cash Flow (B) 0 -$29,000 -$29,000 1 14,400 4,400 2 12,300 9,800 3 9,200 18,500 4 8,100 16,800 A: Choose A because project A has a higher IRR B: Choose B because project B has a higher NPV C: Choose B because project B has shorter payback period...

Question