a.
Adequate information:
Discount rate=10%
Cash flows of Technology CDMA in Year 0 = -$18 million
Cash flows of Technology CDMA in Year 1= $23 million
Cash flows of Technology CDMA in Year 2= $16 million
Cash flows of Technology CDMA in Year 3= $6 million
Cash flows of Technology G4 in Year 0 = -$25 million
Cash flows of Technology G4 in Year 1 = $21 million
Cash flows of Technology G4 in Year 2 = $51 million
Cash flows of Technology G4 in Year 3 = $41 million
Cash flows of Technology Wi-Fi in Year 0 = -$43 million
Cash flows of Technology Wi-Fi in Year 1 = $39 million
Cash flows of Technology Wi-Fi in Year 2 = $66 million
Cash flows of Technology Wi-Fi in Year 3= $42 million
To determine: Ranks of technologies based on profitability index decision rule.
Introduction: The profitability index is a budgeting technique that evaluates various investment proposals based on profitability. Other budgeting techniques are
b.
Adequate information:
Discount rate=10%
Cash flows of Technology CDMA in Year 0 =-$18 million
Cash flows of Technology CDMA in Year 1=$23 million
Cash flows of Technology CDMA in Year 2=$16 million
Cash flows of Technology CDMA in Year 3=$6 million
Cash flows of Technology G4 in Year 0 =-$25 million
Cash flows of Technology G4 in Year 1 = $21 million
Cash flows of Technology G4 in Year 2 = $51 million
Cash flows of Technology G4 in Year 3 = $41 million
Cash flows of Technology Wi-Fi in Year 0 = -$43 million
Cash flows of Technology Wi-Fi in Year 1 = $39 million
Cash flows of Technology Wi-Fi in Year 2 = $66 million
Cash flows of Technology Wi-Fi in Year 3=$42 million
To determine: Ranks of technologies based on NPV.
Introduction: NPV is the difference between the aggregate value of cash inflows and the aggregate value of cash outflows.
c.
Adequate information:
Discount rate=10%
Cash flows of Technology CDMA in Year 0 =-$18 million
Cash flows of Technology CDMA in Year 1=$23 million
Cash flows of Technology CDMA in Year 2=$16 million
Cash flows of Technology CDMA in Year 3=$6 million
Cash flows of Technology G4 in Year 0 =-$25 million
Cash flows of Technology G4 in Year 1 = $21 million
Cash flows of Technology G4 in Year 2 = $51 million
Cash flows of Technology G4 in Year 3 = $41 million
Cash flows of Technology Wi-Fi in Year 0 = -$43 million
Cash flows of Technology Wi-Fi in Year 1 = $39 million
Cash flows of Technology Wi-Fi in Year 2 = $66 million
Cash flows of Technology Wi-Fi in Year 3=$42 million
To discuss: Recommendation to the CEO based on the above results.
Introduction: The profitability index is a budgeting technique that evaluates various investment proposals based on profitability.
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Chapter 5 Solutions
CORPORATE FINANCE
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