Today, Northwest Agricultural is investing $29,800 in a “pears” project with a cost of capital of 8.3%. The pears project will produce cash flows of $9,600 and $10,900, over the next two years, respectively. During its final two years, the pears project will produce cash flows of $14,000 and $8,500, respectively. What is the profitability index of the 4-year pears project? a. 1.088 b. 1.187 c. .989 d. .843 e. 1.335
Today, Northwest Agricultural is investing $29,800 in a “pears” project with a cost of capital of 8.3%. The pears project will produce cash flows of $9,600 and $10,900, over the next two years, respectively. During its final two years, the pears project will produce cash flows of $14,000 and $8,500, respectively. What is the profitability index of the 4-year pears project? a. 1.088 b. 1.187 c. .989 d. .843 e. 1.335
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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Today, Northwest Agricultural is investing $29,800 in a “pears” project with a cost of capital of 8.3%. The pears project will produce cash flows of $9,600 and $10,900, over the next two years, respectively. During its final two years, the pears project will produce cash flows of $14,000 and $8,500, respectively. What is the profitability index of the 4-year pears project?
a. 1.088
b. 1.187
c. .989
d. .843
e. 1.335
Expert Solution
Profitability Index
Profitability index is a measure of capital budgeting decision which aims to analyze whether the project should be accepted or not. If profitability index is more than 1, then it implies a positive net present value and hence, project should be accepted.
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