Q4. A project costing $6,200 initially should produce cash inflows of $2,860 per year at the end of Year 2, Year 3, and Year 4. The project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. a) What is the profitability index of this project if the required rate of return is 11.3 percent? b) There is a second project which has a credible profitability index of 1.80. If your financial condition only allows you to invest one of the two projects, which would you go based on their profitability indices?
Q4. A project costing $6,200 initially should produce cash inflows of $2,860 per year at the end of Year 2, Year 3, and Year 4. The project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. a) What is the profitability index of this project if the required rate of return is 11.3 percent? b) There is a second project which has a credible profitability index of 1.80. If your financial condition only allows you to invest one of the two projects, which would you go based on their profitability indices?
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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both subparts a and b please thank you!!
Transcribed Image Text:Q4. A project costing $6,200 initially should produce cash inflows of $2,860 per year at the
end of Year 2, Year 3, and Year 4. The project will be shut down and will be sold at the end of
Year 4 for an estimated net cash amount of $3,300.
a) What is the profitability index of this project if the required rate of return is 11.3 percent?
b) There is a second project which has a credible profitability index of 1.80. If your
financial condition only allows you to invest one of the two projects, which would you
go based on their profitability indices?
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