Consider the following two projects: Cash flows Project A Project B -$180 -$180 Co C1 C2 C3 C4 70 70 70 70 88 88 88 a. If the opportunity cost of capital is 10%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 10%. c. Which one would you choose if the cost of capital is 15%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h-1. If the opportunity cost of capital is 10%, what is the profitability index for each project? h-2. Is the project with the highest profitability index also the one with the highest NPV? h-3. Which measure should you use to choose between the projects?

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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I need help with H-1.

Consider the following two projects:
Cash flows Project A Project B
-$180
-$180
8 5 5 5 5
Co
C1
C2
C3
C4
a. If the opportunity cost of capital is 10%, which of these two projects would you accept (A, B, or both)?
b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 10%.
70
70
70
70
c. Which one would you choose if the cost of capital is 15%?
d. What is the payback period of each project?
e. Is the project with the shortest payback period also the one with the highest NPV?
f. What are the internal rates of return on the two projects?
88
88
88
g. Does the IRR rule in this case give the same answer as NPV?
h-1. If the opportunity cost of capital is 10%, what is the profitability index for each project?
h-2. Is the project with the highest profitability index also the one with the highest NPV?
h-3. Which measure should you use to choose between the projects?
Req A
Complete this question by entering your answers in the tabs below.
Req B
Profitability Index
Req C
Req D
Project A
Req E
Project B
Req F
Req G
Req H 1
If the opportunity cost of capital is 10%, what is the profitability index for each project? (Round your answers to 2 decimal
places.)
Req H 2
Req H 3
Transcribed Image Text:Consider the following two projects: Cash flows Project A Project B -$180 -$180 8 5 5 5 5 Co C1 C2 C3 C4 a. If the opportunity cost of capital is 10%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 10%. 70 70 70 70 c. Which one would you choose if the cost of capital is 15%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? 88 88 88 g. Does the IRR rule in this case give the same answer as NPV? h-1. If the opportunity cost of capital is 10%, what is the profitability index for each project? h-2. Is the project with the highest profitability index also the one with the highest NPV? h-3. Which measure should you use to choose between the projects? Req A Complete this question by entering your answers in the tabs below. Req B Profitability Index Req C Req D Project A Req E Project B Req F Req G Req H 1 If the opportunity cost of capital is 10%, what is the profitability index for each project? (Round your answers to 2 decimal places.) Req H 2 Req H 3
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