USE THE FOLLOWING INFORMATION TO ANSWER QUESTIONS 5 & 6. You are the CEO of Mustafa...
USE THE FOLLOWING INFORMATION TO ANSWER QUESTIONS 5 & 6.
You are the CEO of Mustafa Inc. and you need to decide between two separate projects that have been proposed by two very good friends of yours. The required rate of return is 10%. You know the following information:
Year Smith Project
-
0 -12,000
-
1 3000
-
2 3500
-
3 4000
-
4 4500
-
5 5000
5. What is the profitability index for the Smith Project?
-
1.39
-
1.54
-
.96
-
1.04
-
1.23
What is the IRR for the Catrine project?
-
25.67%
-
22.52%
-
18.91%
-
20.48%
-
31.67%
Homework Answers
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| Dear Student | ||||
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| Please find below the answer | ||||
| Statement showing Cash flows | ||||
| Particulars | Time | PVf 10% | Amount | PV |
| Cash Outflows | - | 1.00 | (12,000.00) | (12,000.00) |
| PV of Cash outflows = PVCO | (12,000.00) | |||
| Cash inflows | 1.00 | 0.9091 | 3,000.00 | 2,727.27 |
| Cash inflows | 2.00 | 0.8264 | 3,500.00 | 2,892.56 |
| Cash inflows | 3.00 | 0.7513 | 4,000.00 | 3,005.26 |
| Cash inflows | 4.00 | 0.6830 | 4,500.00 | 3,073.56 |
| Cash inflows | 5.00 | 0.6209 | 5,000.00 | 3,104.61 |
| PV of Cash Inflows =PVCI | 14,803.26 | |||
| PI = PVCI/PVCO | 1.23 | |||
| Profitability index is 1.23 | ||||
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