Exercise 12-5 Preference Ranking [LO12-5]Information on four investment proposals is given below:Investment ProposalBCDInvestment requiredPresent value of cash inflowsA$(136,000) $(146,000) $(116,000) $(189,000)209,440 216,080 153, 120 275,940Net present value$ 73,440 $ 70,080 $ 37,120 $ 86,940Life of the project5 years 7 years 6 years 6 yearsRequired:1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.)2. Rank the proposals in terms of preference.InvestmentProposalProjectProfitabilityRankPreferenceIndexABCD0.54 First0.48SecondFourthThird

Profitability index is calculated using the formula Profitability index=NPVInitial investment. This…

Information on four investment proposals is given below: Investment Proposal B C A D Investment required $(136,000) $(146,000) $(116,000) $(189,000) 209,440 216,080 153, 120 275,940 Present value of cash inflows Net present value $ 73,440 $ 70,080 $ 37,120 $ 86,940 5 years 7 years 6 years 6 years Life of the project Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.

Information on four investment proposals is given below: Investment Proposal B C A D Investment required $(136,000) $(146,000) $(116,000) $(189,000) 209,440 216,080 153, 120 275,940 Present value of cash inflows Net present value $ 73,440 $ 70,080 $ 37,120 $ 86,940 5 years 7 years 6 years 6 years Life of the project Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.

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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The management of Riker Inc. is exploring five different investment opportunities. Information on the five projects under study follow Project Number Investment required Present value of cash inflows at a 10% discount rate Net present value Life of the project Project 1 2 3 4 5 Profitability Index 1 2 3 $(390,000) $(330,000) $(350,000) 478,490 396,950 $ 88,490 $ 66,950 6 years 3 years First preference Second preference 433,190 $ (83,190) 5 years The company's required rate of return is 10%; thus, a 10% discount rate has been used in the preceding present value computations. Limited funds are available for investment, and so the company cannot accept all of the available projects. Third preference Fourth preference Fifth preference 4 $(330,000) Required: 1. Compute the profitability Index for each investment project. (Round your answers to 2 decimal places.) 300, 100 $ 29,900 12 years 5 $(480,000) 562,860 $82,860 6 years 2. Rank the five projects according to preference, in terms of (a)…
X will pay $80,000 for a project that will generate the following cash flows: YEAR 1 2 3 4 5 7 8 CASH FLOW $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $30,000 $30,000 The payback period for the investment is: O 7 years O 6.25 years O 7 years O 7.33 years
Given the cash flows of the following two project, which project should the company choose if the company can choose only one of the projects? The cost of capital is 11 percent. Year Project A Project B 0 -$200 -$200 1 80 100 2 80 100 3 80 100 4 80 Options: Project A Project B
You are given the following cash flow information for Project A TV Inflows Year 0 PV Outflows -$150,000.00 1 Project A -$150,000.00 $80,000.00 -$25,000.00 $50,000.00 2 $80,000.00 -$30,000.00 $75,000.00 Totals 3 4 5 6 O 19.33% $75,000.00 Now assume that the project's cost of capital is 16.0 percent, but that its true reinvestment rate is 24.0 percent. Given this information, determine the project's modified internal rate of return (MIRR). Ⓒ 18.56% 5 pts
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The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Project Number 1 2 3 4 Investment required $ (270,000) $ (450,000) S (360,000) $ (480,000) Present value of cash inflows 336, 140 522,970 433, 400 567, 270 Net present value $ 66, 140 $ 72,970 $ 73,400 $ 87,270 Life of the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16% The net present values above have been computed using a 10% discount rate. Limited funds are available for investment, so the company can't accept all of the available projects. Required: Compute the profitability index for each investment project. Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.
O Redmond Company is considering investing in one of the following two projects: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Year 1 2 3 4 Total Annual Cash Project A $ 2,040 3,040 3,040 1,040 $ 9,160 Inflows Project B $ 4,040 2,040 2,040 1,040 $ 9,160 Required: a. Which project is more desirable strictly in terms of cash inflows? b. Compute the present value of each project's cash inflows assuming the company's required rate of return is 12%. c. What is the maximum amount Redmond should be willing to pay for each project? d. Suppose each project costs $7,120. Which project(s) should be accepted? Required A Complete this question by entering your answers in the tabs below. Required B Required C Required D Which project is more desirable strictly in terms of cash inflows? More desirable strictly in terms of cash inflows
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