Question
In: Finance
Given the discount rate and the future cash flow of each project listed in the following...
Given the discount rate and the future cash flow of each project listed in the following table, use the PI to determine which projects the company should accept.
| Cash Flow | Project U | Project V | |
| Year 0 | -$2,000,000 | -$2,300,000 | |
| Year 1 | $500,000 | $1,150,000 | |
| Year 2 | $500,000 | $950,000 | |
| Year 3 | $500,000 | $750,000 | |
| Year 4 | $500,000 | $550,000 | |
| Year 5 | $500,000 | $350,000 | |
| Discount rate | 5% | 15% |
What is the PI of project U?
(Round to two decimal places.)
Solutions
Expert Solution
We know that Proftability Index = PV of future cashflow/ Initial Outlay
Project U:
Initial Outlay = 2000000
PV of Future Cashflow = 2164738.34
Proftability Index = 2164738.34 / 2000000
= 1.082
Project V:
Initial Outlay = 2300000
PV of Future Cashflow = 2699949.81
Proftability Index = 2699949.80/ 2300000
= 1.174
As profitability Index of project V is more than Project U, company should accept Project V.
jeff jeffy answered 2 years agoRelated Solutions
Given the discount rate and the future cash flow of each project listed in the following...
Given the discount rate and the future cash flow of each project
listed in the following table, use the PI to determine which
projects the company should accept.
Cash Flow
Project A
Project B
Year 0
−$2,000,000
-$2,600,000
Year 1
$200,000
$1,300,000
Year 2
$400,000
$1,100,000
Year 3
$600,000
$900,000
Year 4
$800,000
$700,000
Year 5
$1,000,000
$500,000
Discount rate
8%
15%
a) What is the PI of project A?
b) What is the PI of project B?
Given the discount rate and the future cash flow of each project listed in the following...
Given the discount rate and the future cash flow of each project
listed in the following table,
use the PI to determine which projects the company should
accept.
What is the PI of project A?
Enter your answer in the answer box and then click Check
Answer.
Cash Flow
Project A
Project B
Year 0
−$2,000,000
−$2,600,000
Year 1
$400,000
$1,300,000
Year 2
$550,000
$1,150,000
Year 3
$700,000
$1,000,000
Year 4
$850,000
$850,000
Year 5
$1,000,000
$700,000
Discount rate...
Profitability index. Given the discount rate and the future cash flow of each project listed in...
Profitability index. Given the discount rate and the future cash
flow of each project listed in the following table, use the PI to
determine which projects the company should accept. Cash Flow
Project U Project V Year 0 -$1,800, 000 -$2, 400,000 Year 1
$450,000 $1, 200,000 Year 2 $450,000 $1,000,000 Year 3
$450,000 $800, 000 Year 4 $450, 000 $600,000 Year 5
$450,000 $400,000 Discount rate 7% 12%
What is profitability Index? Given the discount rates and the future cash flows of each project,...
What is profitability Index? Given the discount rates and the
future cash flows of each project, which project should they accept
using Profitability Index?
Cash Flows
Project A
Project B
Project C
Project D
Year Zero
- $ 1,500,000
- $ 1,500,000
- $ 2,000,000
- $ 2,000,000
Year One
$ 350,000
$ 400,000
$ 700,000
$ 200,000
Year Two
$ 350,000
$ 400,000
$ 600,000
$ 400,000
Year Three
$ 350,000
$ 400,000
$ 500,000
$ 600,000
Year Four...
capital budgeting criteria: You are given the following cash flow of a project with a discount...
capital budgeting criteria:
You are given the following cash flow of a project with a
discount rate of 7%. Calculate the Net Present Value, Internal Rate
of Return, Profitability Index, and Payback Period.
Year
Cash.Flow
0
-17000
1
4500
2
8700
3
11900
Net present value = ??
Internal Rate of Return = ??
Profitability Index = ??
Payback period = ??
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capital budgeting criteria: You are given the following cash flow of a project with a discount...
capital budgeting criteria:
You are given the following cash flow of a project with a
discount rate of 7%. Calculate the Net Present Value, Internal Rate
of Return, Profitability Index, and Payback Period.
Year
Cash.Flow
0
-17000
1
4500
2
8700
3
11900
Net present value = ??
Internal Rate of Return = ??
Profitability Index = ??
Payback period = ??
Given a discount rate of 11%, which of the following cash flow streams has the highest...
Given a discount rate of 11%, which of the following cash flow
streams has the highest present value?
Multiple Choice
12 equal payments of $600 beginning at the end of Year 1.
10 equal payments of $600 beginning immediately.
12 equal payments of $550 beginning immediately.
You are given the following cash flow information. The appropriate discount rate is 4 percent for...
You are given the following cash flow information. The
appropriate discount rate is 4 percent for years 1-6 and 6 percent
for years 7-12. Payments are received at the end of each year.
Year
Amount
1-6
$25,000
7-12
$35,000
What is the present value of the income stream above?
***Please show your work***
The current worth of a future cash flow can be determined for a given rate of...
The
current worth of a future cash flow can be determined for a given
rate of return by calculating the present value of the cash flow
involved.
Use the following cash flow with a 5% discount rate: Year Cash Flow 0 -$ 80,000...
Use the following cash flow with a 5% discount rate:
Year Cash Flow
0 -$ 80,000
1 20,000
2 15,000
3 20,000
4 25,000
5 30,000
What is the NPV?
$ 9,154
-$2,567
$14,003
$10,036
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