Nelson's Industrial Supply is considering a project that has projected cash inflows of $6,000 a year for 4 years. The initial cost of the project is $16,800 and the required return is 12.75 percent. Should this project be accepted based on the profitability index criterion? Why or why not? a. no; because the Pl is .58 b. yes; because the PI is .58 c. yes; because the PI is 1.07 d. no; because the PI is 1.07

Nelson's Industrial Supply is considering a project that has projected cash inflows of $6,000 a year for 4 years. The initial cost of the project is $16,800 and the required return is 12.75 percent. Should this project be accepted based on the profitability index criterion? Why or why not? a. no; because the Pl is .58 b. yes; because the PI is .58 c. yes; because the PI is 1.07 d. no; because the PI is 1.07

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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The Michner Corporation is trying to choose between the following two mutually exclusive design projects: S Year Cash Flow (I) Cash Flow (II) 0 -$ 84,000 -$ 42,000 1 33,900 12,600 2 3 31,500 25,500 44,000 50,000 a-1. If the required return is 17 percent, what is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. a-2. If the company applies the profitability index decision rule, which project should it take? b-1. If the required return is 17 percent, what is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. If the company applies the net present value decision rule, which project should it take? a-1. Project I a-2. Project II b-1. Project I Project II b-2. Project II Project I