nswer the following: 1. Calculate the NPV for each proposed project. If the company was able to undertake all positive NPV projects, what level of NPV could be achieved? 2. Calculate the profitability index for each of the five project
Pseudo Enterprise has ambitious expansion plans for 2022. At a recent Annual General Meeting, the shareholders approved the proposal for further expansion and the board of directors has allocated £330,000 for new projects. As the Senior Manager of Pseudo Enterprise, you have been authorised to conduct the project appraisal for five new projects and submit a recommendation to management on how best to spend £330,000 for new projects.
The projects you are considering have the following information:
|
Year |
0 (£,000) |
1 (£,000) |
2 (£,000) |
3 (£,000) |
4 (£,000) |
|
Project 1 |
-105 |
0 |
180 |
0 |
0 |
|
Project 2 |
-150 |
90 |
90 |
90 |
0 |
|
Project 3 |
-60 |
30 |
30 |
30 |
30 |
|
Project 4 |
-90 |
45 |
45 |
45 |
45 |
|
Project 5 |
-180 |
210 |
0 |
0 |
0 |
The cash flows are confined to the lifetime of each project. Apart from initial investments that occur at the beginning of the project, all cash flows occur at year end. The following information on the projects is available:
- The cost of capital is 10%,
- Assume no taxes,
- Projects are independent and divisible.
Answer the following:
1. Calculate the
2. Calculate the profitability index for each of the five projects
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
