18. The following are the cash flows of two projects: Year Project A Project B 0

Question

18. The following are the cash flows of two projects:
Year Project A Project B 0 %u2212$230        %u2212$230        1 110        130        2 110        130        3 110        130        4 110       
a. If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
  Project Profitability Index    A       B      
b. Does the profitability index rank the projects correctly? Yes No The following are the cash flows of two projects:
Year Project A Project B 0 %u2212$230        %u2212$230        1 110        130        2 110        130        3 110        130        4 110       
a. If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
  Project Profitability Index    A       B      
b. Does the profitability index rank the projects correctly? Yes No The following are the cash flows of two projects:
Year Project A Project B 0 %u2212$230        %u2212$230        1 110        130        2 110        130        3 110        130        4 110       
a. If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
  Project Profitability Index    A       B      
b. Does the profitability index rank the projects correctly? Yes No The following are the cash flows of two projects:
Year Project A Project B 0 %u2212$230        %u2212$230        1 110        130        2 110        130        3 110        130        4 110       
a. If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
  Project Profitability Index    A       B      
b. Does the profitability index rank the projects correctly? Yes No The following are the cash flows of two projects:

Explanation / Answer

for project A ...

NPV = -230 + 110 / 1.11 + 110/1.11^2 + 110/1.11^3 + 110/1.11^4 = 111.269

profitability index =1 + 111.269 /230 = 1.483778

for project B

NPV = -230 + 130/1.11 +130 / 1.11^2 +130 / 1.11 ^ 3 = 87.68291

Profitabiiyu inde x =1+ 87.68291/ 230 = 1.38123

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