Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value ofall its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of$6,000,000.(a) Compute the profitability index for each project.(b) Based on the profitability index, which project should the company select?Complete this question by entering your answers in the tabs below.Required ARequired BBased on the profitability index, which project should the company select?Based on the profitability index, which project should the company select?< Required ARequired B Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value ofall its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of$6,000,000.(a) Compute the profitability index for each project.(b) Based on the profitability index, which project should the company select?Complete this question by entering your answers in the tabs below.Required ARequired BCompute the profitability index for each project.Profitability IndexNumerator:Denominator:Profitability Index=Profitability indexProject 1Project 2< Required ARequired B >

The ratio between the current worth of all cash flows which includes inflows and outflows to the initial outlay that is made at starting of any project is called profitability index for that specific project and value above 1 is optimum.(A) Profitability Index for each project will be as: Result will be as: (B) "Project 1" shall be selected. The reason for selecting Project 1 is higher profitability index which shows that this project will generate 5 times of equivalent cash flows in comparison to Project B that will generate only 1.2 times.

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Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value of all its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of $6,000,000. (a) Compute the profitability index for each project. (b) Based on the profitability index, which project should the company select?

Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value of all its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of $6,000,000. (a) Compute the profitability index for each project. (b) Based on the profitability index, which project should the company select?

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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The Webex Corporation is trying to choose between the following two mutually exclusive designprojects: Year Net Cash Flow Project - I($) Net Cash Flow Project - II($) 0 (53,000) (16,000) 1 27000 9100 2 27000 9100 3 27000 9100 (a) If the required return is 10% and the company applies the Profitability Index decision rule,which project should the firm accept?(b) If the company applies the Net Present Value decision rule, which project should it take?(c) Explain why your answers in (a) and (b) are different(d) Calculate the Internal Rate of Return of both projects.
Company A has an NPV (Net Present Value) of $10,000 for a proposed project, while Company B has a NPV of $5,000 for a different project. Which project is more financially attractive? A. It cannot be determined from the information given B. Company A's project C. Company B's project D. Both projects are equally attractive
A Inc estimates that a new investment with conventional cash flows will generate an NPV of $-117,000. What is the project's profitability index given that the required investment is $4.94 million?
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Crane Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following. Solar Wind Present value of annual cash flows $56,090 $130,820 Initial investment $39,500 $105,500 Determine the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25.) Solar Wind Net present value $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places Profitability index enter the number rounded to 2 decimal places…
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Eddie Corporation is considering the following three investment projects (Ignore income taxes.): Project D $ 65,600 $ 76,096 Multiple Choice Investment required Present value of cash inflows Rank the projects according to the profitability index, from most profitable to least profitable. O E, C, D E, D, C D, C, E Project C $ 57,600 $ 63,936 C, E, D. Project E $ 136,000 $ 148,240
Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. WACC=11%.Plot NPV profiles for the two projects. Identify the projects’ IRRs on the graph.
Carmen, Inc. is considering three different independent investment opportunities. The present value of future cash flows, initial investment, net present value, and profitability index for each of the projects are as follows: Project A Project B Project C Present value of future cash flows $450,100 $313,100 $405,000 Initial investment 200,000 155,000 190, еее Net present value $250, 100 $158,100 $215,000 Profitability index 2.25 2.02 2.13 In what order should Carmen prioritize investment in the projects? Multiple Cholce С, В, А O A, B, C А, С, В C, A, B
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Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 11%? Project A Year 0: Year 1: Year 2: Year 3: O $15,077 O $21,538 $12,923 O $14,000 O $19,384 Cash Flow -$12,500 8,000 14,000 13,000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: -$40,000 9,000 13,000 12,000 11,000 10,000 9,000

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