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 9 percent. Further, the company has only $29 million to invest in new projects this year.

  

Cash Flows (in $ millions)

Year	CDMA			G4			Wi-Fi
0	–$	8		–$	21		–$	29
1		12			19			27
2		8.5			34			41
3		5.5			29			29

  

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.)
b.	Calculate the NPV for each investment. (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89)

    

Answer 1

Particulars	Year	PVF @ 9%	Cash flow project A	PV Project A	Cash flow project B	PV Project B	Cash flow project C	PV Project C
Cash Outflow	0	1.00	-8	(8)	(21)	(21)	-29	(29.00)
Cash Inflow	1	0.92	12	11	19	17	27	24.77
Cash Inflow	2	0.84	8.5	7	34	29	41	34.51
Cash Inflow	3	0.77	5.5	4	29	22	29	22.39
NPV				14		47		52.67
Profiability Index				2.80		3.26		2.82