A project has a profitability index (PI) of 1.1. If the initial investment of $10,000. What do you know about the NPV and IRR? a) NPV may be smaller than zero b)NPV must be $1000 c) The IRR is the pre...
A project has a profitability index (PI) of 1.1. If the initial investment of $10,000. What do you know about the NPV and IRR?
a) NPV may be smaller than zero
b)NPV must be $1000
c) The IRR is the prevailing discount
D) none of the above
Homework Answers
Profitability Index (PI) = PV of Project Benefits / Initial Investment
PI = 1.1 and Initial Investment = $ 10000
PV of Project Benefits = 1.1 x 10000 = $ 11000
Therefore, NPV = 11000 - 10000 = $ 1000
IRR will not be the prevailing discount rate because IRR as discount rate will give NPV equal to zero instead of $ 1000.
Hence, the correct option is (b)
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A project has a profitability index (PI) of 1.1. If the initial investment of $10,000. What do you know about the NPV and IRR? a) NPV may be smaller than zero b)NPV must be $1000 c) The IRR is the pre...
You must know all the cash flows of an investment project to compute its NPV, IRR,...
You must know all the cash flows of an investment project to compute its NPV, IRR, PI and payback period OA NPV, PI, IRR ОВ. Ос. OD IRR, PI payback period and discount payback period NPV, IRR, PI payback period, and discount payback period IRR, PI and payback period NPV, IRR, PI and discount payback period OE. OF.
Please explain the answer. The Murka's project requires initial investments of $77 and its NPV is greater than zero. If...
Please explain the answer.
The Murka's project requires initial investments of $77 and its NPV is greater than zero. If the project has conventional cash flows and discount rate is above zero, then: The profitability index is greater than 1 The IRR is less than the firm's required rate of return The undiscounted payback period is shorter than the project's life. II ll only A) ll only B) I and Il only C) I and IIl only D) Il and...
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Show all work and highlight final answer. Do not answer the question unless you answer all...
Show all work and highlight final answer. Do not answer the
question unless you answer all of them.
4. Which one of the following will decrease the net present value of a project? (a) Increasing the value of each of the project's discounted cash inflows (b) Moving each of the cash inflows forward to a sooner time period (c) Decreasing the required discount rate (d) Increasing the project's initial cost at time zero 5. Which of the following is true...
Abstract This case deals with the capital budgeting techniques of Net Present Value (i.e. NPV) and...
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The CFO of a major corporation is trying to decide on what project to pursue using...
The CFO of a major corporation is trying to decide on what project to pursue using different investment criteria: Net Present Value (NPV), Payback Period, Discounted Payback Period, Internal Rate of Return (IRR), and the Profitability Index (PI). The CFO has four projects to choose between: Project W (which is a strip mine - see problem 6), Project X, Project Y, and Project Z. Additional information about each project is summarized below You can use the workspace provided to help...
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Profitability index = NPV Investment cost To illustrate the use of this measure, let us assume...
Profitability index =
NPV
Investment cost
To illustrate the use of this measure, let us assume that
Midwest Region Hospital is considering an investment in linen
service shared with hospitals in the region.
The initial investment cost is $150,000 for the purchase of new
equipment and light delivery trucks.
Savings in operating costs are estimated to be $50,000 per year
for the entire 5-year life of the project.
If the discount rate is assumed to be 10%, the following
calculations...
You must know all the cash flows of an investment project to compute its NPV, IRR, PI and payback period OA NPV, PI, IRR ОВ. Ос. OD IRR, PI payback period and discount payback period NPV, IRR, PI payback period, and discount payback period IRR, PI and payback period NPV, IRR, PI and discount payback period OE. OF.
Please explain the answer.
The Murka's project requires initial investments of $77 and its NPV is greater than zero. If the project has conventional cash flows and discount rate is above zero, then: The profitability index is greater than 1 The IRR is less than the firm's required rate of return The undiscounted payback period is shorter than the project's life. II ll only A) ll only B) I and Il only C) I and IIl only D) Il and...
Show all work and highlight final answer. Do not answer the
question unless you answer all of them.
4. Which one of the following will decrease the net present value of a project? (a) Increasing the value of each of the project's discounted cash inflows (b) Moving each of the cash inflows forward to a sooner time period (c) Decreasing the required discount rate (d) Increasing the project's initial cost at time zero 5. Which of the following is true...
The CFO of a major corporation is trying to decide on what project to pursue using different investment criteria: Net Present Value (NPV), Payback Period, Discounted Payback Period, Internal Rate of Return (IRR), and the Profitability Index (PI). The CFO has four projects to choose between: Project W (which is a strip mine - see problem 6), Project X, Project Y, and Project Z. Additional information about each project is summarized below You can use the workspace provided to help...
Use the information in the table below for the following 5 questions. A capital investment project is estimated to have the following after-tax cash flows, by year -$35,000 $13,000 $14.000 $15,000$16,000 The company utilizes a discount rate of 8% to evaluate capital projects. You may have rounding errors in your calculations so choose the closest answer. Assume cash flows are received equally over the year. 10) The NET PRESENT VALUE for the project shown above is: a) $13,789 b) $9,672...
Profitability index =
NPV
Investment cost
To illustrate the use of this measure, let us assume that
Midwest Region Hospital is considering an investment in linen
service shared with hospitals in the region.
The initial investment cost is $150,000 for the purchase of new
equipment and light delivery trucks.
Savings in operating costs are estimated to be $50,000 per year
for the entire 5-year life of the project.
If the discount rate is assumed to be 10%, the following
calculations...
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