Question

Given the following information, in which order would you choose the following projects based on the profitability index?
Project A (NPV of cash flows: $190,000, Investment Cost: $50,000)
Project B (NPV of cash flows: $200,000, Investment Cost: $70,000)
Project C (NPV of cash flows: $440,000, Investment Cost: $110,000)

Project B, Project C then Project A

Project C, Project B then Project A

Project A, Project C then Project B

Project A, Project B then Project C

Project C, Project A then Project B

Woolridge LP is considering investing in a project that will cost $100,000 and will generate $25,000 in cash flows for the next 5 years. Assuming a Discount Rate of 12%, which of the following is true?

The project’s profitability index is 1.2

The project’s NPV is $18,143

The project’s payback period is 5 years

All of the above are true

The project’s IRR is 7.9%

Answer 1

Que-1 Choosing the project with the higher NPV is always the best measure,

Project C, Project B then Project A

Que 2:

The project’s IRR is 7.9%

=RATE(5,-25000,100000)

=7.9%