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Consider the following projects: C1 +$2,100 + 1,540 C2 +$1,300 + 1,748 Project Co A -$2,200 - 2,200 a. Calculate the profitability index for A and B assuming a 23% opportunity cost of capital. (Do not round intermediate calculations. Round your answers to 4 decimal places.) Profitability index Project A

Consider the following projects: C1 +$2,100 + 1,540 C2 +$1,300 + 1,748 Project Co A -$2,200 - 2,200 a. Calculate the profitability index for A and B assuming a 23% opportunity cost of capital. (Do not round intermediate calculations. Round your answers to 4 decimal places.) Profitability index Project A

Essentials Of Investments
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
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# Project Evaluation ### Consider the following projects: #### Cash Flow Table | Project | \( C_0 \) | \( C_1 \) | \( C_2 \) | |---------|--------|--------|--------| | A | \(-\$2,200\) | \(+\$2,100\) | \(+\$1,300\) | | B | \(-\$2,200\) | \(+\$1,540\) | \(+\$1,748\) | ### Task **a.** Calculate the profitability index for projects A and B assuming a 23% opportunity cost of capital. **Instructions:** - Do not round intermediate calculations. - Round your final answers to four decimal places. #### Profitability Index Table | Project | Profitability Index | |---------|---------------------| | A | | | B | | ### Explanation - **Profitability Index**: This is a financial metric used to determine the relative profitability of an investment. Calculated as the present value of future cash flows divided by the initial investment. - **Opportunity Cost of Capital**: The rate of return that could be earned on an investment in the financial markets with similar risk. Use these details for calculating the required profitability indexes.
Transcribed Image Text:# Project Evaluation ### Consider the following projects: #### Cash Flow Table | Project | \( C_0 \) | \( C_1 \) | \( C_2 \) | |---------|--------|--------|--------| | A | \(-\$2,200\) | \(+\$2,100\) | \(+\$1,300\) | | B | \(-\$2,200\) | \(+\$1,540\) | \(+\$1,748\) | ### Task **a.** Calculate the profitability index for projects A and B assuming a 23% opportunity cost of capital. **Instructions:** - Do not round intermediate calculations. - Round your final answers to four decimal places. #### Profitability Index Table | Project | Profitability Index | |---------|---------------------| | A | | | B | | ### Explanation - **Profitability Index**: This is a financial metric used to determine the relative profitability of an investment. Calculated as the present value of future cash flows divided by the initial investment. - **Opportunity Cost of Capital**: The rate of return that could be earned on an investment in the financial markets with similar risk. Use these details for calculating the required profitability indexes.
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