Fd be Questions ar 1 are analyzing two proposed capital investments with the fol
ID: 2814116 • Letter: F
Question
Fd be Questions ar 1 are analyzing two proposed capital investments with the following cash flows: 10.43 You Year Project X $20,000 13,000 6,000 6,000 2,000 Project Y 0 -$20,000 7,000 7,000 7,000 7,000 4 The cost of capital for both projects is 10 percent. Calculate the profitability index (PI) for each project. Which project, or projects, should be accepted if you have unlimited funds to invest? Which project should be accepted if they are mutually exclusive? Given the following cash flows for a capital project, calculate the NPV and IRR. The required ra of return is 8 percent.Explanation / Answer
year 0 cash outflows will be the present value of cash outflows for both the projects. (since they are the only cash outflows).
the present value of cash inflows is found out below:
present value factor = 1 / (1+r)^n
r = interest rate = 10% =>0.10
n is number of years
PI = present value of inflows / present value of outflows
PI of project x = 22,651.42 / 20,000
=>1.1325.
PI of project y = 22,189.14 / 20,000
=>1.1095.
.If unlimited funds are avaiable both the projects can be accepted.(since both of them have PI greater than 1).
IF they are mutually exclusive project x is to be selected since it has highest PI of the two.
year present value factor project x cash flow present value of project x cash flow project y cash flow present value of project y cash flow 1 1 / (1.1)^1 =>0.90909 13,000 11,818.82 7,000 6,363.64 2 1/(1.1)^2=>0.82645 6,000 4,958.68 7,000 5,785.12 3 1/(1.1)^3=>0.75131 6,000 4,507.89 7,000 5,259.20 4 1/(1.1)^4=>0.68301 2,000 1,366.03 7,000 4,781.09 tota value of inflows 22,651.42 22,189.14Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.