You are given the following cash flows. If you assume a 14.5 percent required re
ID: 2827287 • Letter: Y
Question
You are given the following cash flows. If you assume a 14.5 percent required return, what is the profitability index?
Year 0 -$46,500
Year 1 $12,200
Year 2 $38,400
Year 3 $11,300
Select one:
a. 0.94
b. 0.98
c. 1.02
d. 1.06
e. 1.11
The internal rate of return
Select one:
a. May produce multiple rates of return when cash flows are conventional
b. Is best used when comparing mutually exclusive projects
c. Is rarely used in the business world today
d. Is principally used to evaluate small dollar projects
e. Is easy to understand
Explanation / Answer
Question 1 Answer: Option c. 1.02 Explanation Profitability Index = (NPV+ Initial Investment) / Initial Investment PV Discount factor = 1/(1+r)n Year Cash Flows Discount factor at 14.5% Discounted cash Flows 0 -46500 1.00000 -46500 1 12200 0.87336 10655 2 38400 0.76276 29290 3 11300 0.66617 7528 NPV 973 Profitability Index = (973+46500)46500 = 1.02 Question 2 Answer: Option e.Easy to understand
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.