Solution. The correct answer is option- B. net present value
Explanation: An organization for capital investment uses tool of capital budgeting to facilitate decision making. For the given question, a project's net present value will be determined by computing the difference between present value of project related cash inflows and outflows, option B holds true. Option A holds false as internal rate of return projects rate where net present value equals zero, option C holds false as present value index is determined by dividing present value of future cash flow by initial investment and option D holds false as accounting rate of return is determined by dividing the average net income by average investment and does not involve time value of money.
A project's is computed as the present value of project related cash inflows and outflows. Select...
17. If the profitably index for a project exceeds 1, then the project's net present value is positive a. b. internal rate of return is less than the projects's disount rate. payback period is less than 5 years. d. c. Accounting rate of return is greater than the project's rate of return. 18. If a project's profitability index is less than 1, the project's a. discount rate is above its cost of capital. b. Internal rate of return is less...
The net present value of a project's cash inflows is $8,216 at a 14 percent discount rate. The profitability index is 1.03 and the firm's tax rate is 34 percent. What is the initial cost of the project? $6,900.00 $7,018.50 $7,428.32 $7,976.70 $8,066.67
Perez Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $180,000 and $154.000, respectively. The present value of cash inflows and outflows for the second alternative is $355,000 and $290,000, respectively. Required a. Calculate the net present value of each investment opportunity. (Negative amounts should be indicated by a minus sign.) b. Calculate the present value index for each investment opportunity. (Round "PVI" to 2 decimal places.) c....
roller company has a choice of two investment alternatives.
The present value of cash inflows and outflows for the first
alternative is $125,000 and $100,000, respectively. The present
value of cash inflows and outflows for the second alternative is
$300,000 and $262,500, respectively.
a. calculate the net present value of each investment
opportunity
b. calculate the present value index for each investment
opportunity
c. indicate which investment will produce the higher rate of
return
Exercise 10-7A Using the present value...
the difference between the present value of cash inflows and the present value of cash outflows associated with a project is known as
Adams company has a choice of two investment alternatives. the
present value of cash inflows
Exercise 16-7 Using the present value index LO 16-2 Adams Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $130,000 and $102.000, respectively. The present value of cash inflows and outflows for the second alternative is $305,000 and $265,000, respectively Required a. Calculate the net present value of each investment opportunity. (Negative amounts...
The ________ method of capital budgeting finds the present value of cash inflows and subtracts the initial cash outflow. a. payback b. net present value c. internal rate of return d. modified internal rate of return
The profitability index is cakulated by dividing the project's
net present value by the present value of the projected cash
outflows
The profitability index is calculated by dividing the project's net present value by the present value of the projected cash outflows. True • False
Stuart Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $200,000 and $162,000, respectively. The present value of cash inflows and outflows for the second alternative is $375,000 and $300,000, respectively. Required a. Calculate the net present value of each investment opportunity. (Negative amounts should be indicated by a minus sign.) b. Calculate the present value index for each investment opportunity. (Round "PVI" to 2 decimal places.) c....
Gibson Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $165,000 and $116,000, respectively. The present value of cash inflows and outflows for the second alternative is $340,000 and $282,500, respectively. Required a. Calculate the net present value of each investment opportunity. (Negative amounts should be indicated by a minus sign.) b. Calculate the present value index for each investment opportunity. (Round "PVI" to 2 decimal places.) c....