Compute the Pl statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time: 1 2 4 5 Cash flow: -75 -75 100 75 50 Multiple Cholce 10.1896, ассерt 0.1896, reject 2, асcеpt 1.1896, accept
Compute the Pl statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time: 1 2 4 5 Cash flow: -75 -75 100 75 50 Multiple Cholce 10.1896, ассерt 0.1896, reject 2, асcеpt 1.1896, accept
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Can i get the correct answer to the attached image?
Transcribed Image Text:### Cash Flow Analysis for Project X
**Objective:** Compute the Profitability Index (PI) statistic for Project X and determine if the project should be accepted or rejected given a cost of capital of 10%.
#### Cash Flow Details
| **Time (Year)** | **Cash Flow ($)** |
|-----------------|-------------------|
| 0 | -75 |
| 1 | -75 |
| 2 | 0 |
| 3 | 100 |
| 4 | 75 |
| 5 | 50 |
#### Decision Choices
- **0.1896, reject**
- **2, accept**
- **1.1896, accept**
##### Selected Option:
- **10.1896, accept**
---
The above table and multiple-choice options illustrate a typical capital budgeting exercise where the aim is to calculate the PI, a financial metric used to assess the desirability of an investment. The PI greater than 1 indicates that the net present value of future cash flows exceeds the initial investment, suggesting the project is expected to generate a return above the cost of capital, thus it should be accepted.
**Note:** The chosen option indicates that Project X is highly favorable under these assumptions.
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