The Sloan Corporation is trying to choose between the following two mutually exc
ID: 2738865 • Letter: T
Question
The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: If the required return is 10 percent, what is the pro?tability index for both projects? (Do not round intermediate calculations. Round your answers to 3 decimal places, e.g., 32.161.) If the company applies the pro?tability index decision rule, which project should the firm accept? What is the NPV for both projects? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) If the company applies the NPV decision rule, which project should it take?Explanation / Answer
Statement showing Cash flows Cash Flow (I) Cash Flow (II) Particulars Time PVf@10% Amount PV Amount PV Cash Outflows - 1.00 (69,000.00) (69,000.00) (17,500.00) (17,500.00) PV of Cash outflows = PVCO (69,000.00) (17,500.00) Cash inflows 1.00 0.9091 31,000.00 28,181.82 9,450.00 8,590.91 Cash inflows 2.00 0.8264 31,000.00 25,619.83 9,450.00 7,809.92 Cash inflows 3.00 0.7513 31,000.00 23,290.76 9,450.00 7,099.92 PV of Cash Inflows =PVCI 77,092.41 23,500.75 b-1) NPV= PVCI - PVCO 8,092.41 6,000.75 a-1) PI = PVCI/PVCO 1.12 1.34 b-2) Based on NPV Project I should be selected a-2) Based on PI Project II should be selected
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