Which one of the following statements is not true regarding the profitability index (PI)
Which one of the following statements is not true regarding the profitability index (PI)?
(1) The PI expresses the present value of an investment as a ratio of the initial investment
(2) If the present value of future cash flows is less than the initial investment, then the PI will be less than 1.
(3) The PI quantities how much a project is expected to earn for every Rl invested in the project.
(4) A negative value for Pl is indicative of an unprofitable investment.
(5) A lower discount rate will result in an increase in the PI of a project.
Homework Answers
Answer: [4] A negative value for PI is indicative of an unprofitable investment.
Explanation:
The investment is unprofitable when PI is less than 1. It cannot be negative.
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Which one of the following statements is not true regarding the profitability index (PI)
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Exercise 24-12 Net present value, profitability index LO P3 Following is information on two alternative investments...
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Check my work QS 24-10 Profitability index LO P3 1.25 points Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $480,000 and has a present value of cash flows of $1,750,000. Project 2 requires an initial investment of $5 million and has a present value of cash flows of $6 million. eBook 1. Compute the profitability index for each project. Hint Profitability Index Choose Denominator: Choose Numerator: = Profitability Index Profitability index Print References Project...
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Estimating the cash flow generated by $1 invested in a project The profitability index (PI) is a capital budgeting tool that is defined as the present value of a project's cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Happy Dog Soap Company is considering investing $2,750,000 in a project that is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $350,000 $450,000 $475,000...
Which of the following comes closest to the profitability index (PI) of a project that requires an initial investment of $100 and produces a single cash flow of $160 at the end of year 10if the required rate of return is 11%? a. 0.52 b. 0.47 ︵ c, 0.62 O d. 0.43 e. 0.56
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If a project costing $73000 has a profitability index of 1 and the discount rate was 12%, then the present value of the net cash flows was O greater than $73000. undeterminable. $73000. O less than $73000.
QS 24-10 Profitability index LO P3 Yokam Company is considering two aternative projects. Project requires an initial Investment of $490,000 and has a present value of cash flows of $2.250.000. Project 2 requires an initial Investment of $4 million and has a present value of cash flows of $7 m lon. 1. Compute the profitability Index for each project. Profitability Index Choose Numerator: Choose Profitability Index Profitability index Project Project 2. Based on the profitability Index, which project should the...
Check my work QS 24-10 Profitability index LO P3 1.25 points Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $480,000 and has a present value of cash flows of $1,750,000. Project 2 requires an initial investment of $5 million and has a present value of cash flows of $6 million. eBook 1. Compute the profitability index for each project. Hint Profitability Index Choose Denominator: Choose Numerator: = Profitability Index Profitability index Print References Project...
The profitability index (PI) is a capital budgeting tool that is defined as the present value of a project's cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Happy Dog Soap Company is considering investing $2,500,000 in a project that is expected to generate the following net cash flows: Happy Dog Soap Company uses a WACC of 9% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded...
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