Question 1. A project manager is working on justification of a project. Since very little information is known about the project, some rough estimates have been gathered. Following table is prepared to show the cash inflow and outflow for the following years: Year Cash In Flow ($) Cash Out Flow ($) 006 200 300 2 400 200 3 500 300 4 500 200 900 300 a) What is the payback period for this project? b) lf the required rate of return is 20%, is the project mentioned above acceptable? Use NPV. c). Calculate profitability index to determine if the project acceptable. Use 20% interest rate.
Question 1. A project manager is working on justification of a project. Since very little information is known about the project, some rough estimates have been gathered. Following table is prepared to show the cash inflow and outflow for the following years: Year Cash In Flow ($) Cash Out Flow ($) 006 200 300 2 400 200 3 500 300 4 500 200 900 300 a) What is the payback period for this project? b) lf the required rate of return is 20%, is the project mentioned above acceptable? Use NPV. c). Calculate profitability index to determine if the project acceptable. Use 20% interest rate.
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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Transcribed Image Text:Question 1.
A project manager is working on justification of a project. Since very little
information is known about the project, some rough estimates have been gathered. Following table is
prepared to show the cash inflow and outflow for the following years:
Cash In Flow ($)
Cash Out Flow ($)
Year
900
300
200
2.
400
200
500
300
4
500
200
900
300
a)
What is the payback period for this project?
b)
lf the required rate of return is 20%, is the project mentioned above acceptable? Use NPV.
c).
Calculate profitability index to determine if the project acceptable. Use 20% interest rate.
) If the required rate of return is accepted as 15%, how this affects the NPV of the project.
There is no need for calculation, only make comment.
d)
NOTE: Show the calculations for the question a, b, and c and fill in the table below.
Cash
Net
Cash In
Discounted
Year
Out
cash
Cum Cash Flow
Flow ($)
Cash Flow
Flow ($)
flow
900
300
200
400
200
3
500
300
500
200
900
300
Discounted Cash Flow (NPV)
Net Cash In Flow
Net Cash Out Flow
Profitability Index
Payback Period
1
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