Question

Question 9 5 pts Use the following after-tax cash flows for project A and B to answer the following question: (Numbers in parentheses are negative cash flows). These two projects are independent Year Cash Flow of A Cash Flow of B 0 ($2,400) ($4,500) 1 $999 $800 2 $950 $950 3 ($150) $950 4 $910 $800 5 $990 $900 6 ($500) $1980 Which project should be taken if the required rate of return is 10%? o Take both projects o Take project A o Take project B o Don't take either project o We can't tell which project to take without further information about the projects. Question 10 5 pts Use the following after-tax cash flows for project A and B to answer the following question: (Numbers in parentheses are negative cash flows). These two projects are independent. Year Cash Flow of A Cash Flow of B 0 ($2,400) ($4,500) 1 $999 $800 2 $950 $950 3 ($150) $950 4 $910 $800 5 $990 $900 6 ($500) $1980 What is the approximate profitability index for project Aif the required rate of return is 10%? O 1.05 o (1.07) o 1.07 o (105) o It does not exist because it is a nonconventional project.

Answer 1

E G H F Project B year B10 fx =IRR(B3:39) А B C D 1 Project A 2 year Cash flows PV@10% Present Value 3 0 $(2,400.00) 1 $ (2,400.00) 4 1 $ 999.00 0.9091 $ 908.18 5 21 $ 950.00 0.8264 $ 785.12 6 3 $ (150.00) 0.7513 $ (112.70) 7 4 $ 910.00 0.6830 $ 621.54 8 5 $ 990.00 0.6209 $ 614.71 9 6 $ (500.00) 0.5645 $ (282.24) 10 IRR 12.58%||NPV $ 134.63 11 12 PI 1+NPV/Initial Investment 13 1+134.63/2400 14 1.056 15 16 09 Take Project A 17 Q10 1.05 Cash flows PV@10% Present Value 0 $(4,500.00) 11 $ (4,500.00) 1 $ 800.00 0.9091 $ 727.27 2 $ 950.00 0.8264 $ 785.12 3 $ 950.00 0.7513 $ 713.75 4 $ 800.00 0.6830 $ 546.41 5 $ 900.00 0.62090 $ 558.83 6 $ 1,980.00 0.5645 $ 1,117.66 9.66% NPV $ (50.96) IRR =

B10 fx =IRR(B3:39) B C D E А 1 Project A 2 year 30 Present Value =B3*C3 =B4*C4 =B5*C5 4 1 5 2 F G H Project B year Cash flows PV@10% Present Value 0 |-4500 1 =G3*H3 1 800 =H3/1.1 =G4*H4 2 950 =H4/1.1 =G5*H5 3 950 =H5/1.1 =G6*H6 4 800 =H6/1.1 =G7*H7 5 900 =H7/1.1 =G8*H8 6 1980 =H8/1.1 =G9*H9 IRR =IRR(G3:39) NPV |=SUM(13:19) Cash flows PV@10% -2400 1 999 =C3/1.1 950 =C4/1.1 - 150 =C5/1.1 910 =C6/1.1 990 =C7/1.1 |-500 1=C8/1.1 =IRR(B3:39) NPV 6 3 =B6 C6 74 8 5 =B7*C7 =B8*C8 =B9*C9 =SUM(D3:09) 96 10 IRR 11 12 PI 13 1+NPV/Initial Investment 1+134.63/2400 =1+134.63/2400 14 15 16 09 Take Project A 1.05 17 Q10 18