Consider the case of Fuzzy Badger Transport Company: Fuzzy Badger Transport Company is considering investing $550,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $400,000 Year 3 $450,000 Year 4 $500,000 Fuzzy Badger uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project’s PI (rounded to four decimal places). 2.8298 2.5725 2.3152 2.7011 Fuzzy Badger’s decision to accept or reject this project is independent of its decisions on other projects. Based on the project’s PI, the firm should ----- the project (accept or reject) By comparison, the net present value (NPV) of this project is ----------- (how much). On the basis of this evaluation criterion, Fuzzy Badger should ----------(invest or not invest) in the project because the project -------- (will not or will) increase the firm’s value.
Consider the case of Fuzzy Badger Transport Company: Fuzzy Badger Transport Company is considering investing $550,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $400,000 Year 3 $450,000 Year 4 $500,000 Fuzzy Badger uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project’s PI (rounded to four decimal places). 2.8298 2.5725 2.3152 2.7011 Fuzzy Badger’s decision to accept or reject this project is independent of its decisions on other projects. Based on the project’s PI, the firm should ----- the project (accept or reject) By comparison, the net present value (NPV) of this project is ----------- (how much). On the basis of this evaluation criterion, Fuzzy Badger should ----------(invest or not invest) in the project because the project -------- (will not or will) increase the firm’s value.
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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Consider the case of Fuzzy Badger Transport Company:
Fuzzy Badger Transport Company is considering investing $550,000 in a project that is expected to generate the following net cash flows:
|
Year
|
Cash Flow
|
|---|---|
| Year 1 | $375,000 |
| Year 2 | $400,000 |
| Year 3 | $450,000 |
| Year 4 | $500,000 |
Fuzzy Badger uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project’s PI (rounded to four decimal places).
2.8298
2.5725
2.3152
2.7011
Fuzzy Badger’s decision to accept or reject this project is independent of its decisions on other projects. Based on the project’s PI, the firm should ----- the project (accept or reject)
By comparison, the net present value (NPV) of this project is ----------- (how much). On the basis of this evaluation criterion, Fuzzy Badger should ----------(invest or not invest) in the project because the project -------- (will not or will) increase the firm’s value.
When a project has a PI greater than 1.00, it will exhibit an NPV---------(less than or greater than or equal to); when it has a PI of 1.00, it will have an NPV equal to $0. Projects with PIs ---------- (equal to or greater than or less than) 1.00 will exhibit negative NPVs.
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