Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Answer all 3 all same facts please Question 6 2.5 pts Assume the firm invests $90,000 today to get $29,000 at Year 1 (i.e. one
Answer all 3 all same facts please
Question 6 2.5 pts Assume the firm invests $90,000 today to get $29,000 at Year 1 (i.e. one year from now), $26,000 at Year 2, $36,000 at Year 3, $35,000 at Year 4, $27,500 at Year 5, and $16,500 at Year 6. Assuming the required rate of return for the firm's industry is 10.7%, what is this project's profitability index? 1.24 0.36 O 1.36 0.24 Question 7 2.5 pts Same facts as above, but assume that the firm expands its investment such that the revenues will go up by 20%, but the discount rate will also increase to 16.5%. What is the new profitability index? O 1.64 1.36 0.64 1.40 Question 8 2.5 pts Same facts as Questions 6 and 7: Which of the following best describes how this project's Profitability Index changes based on the increase in revenues by 20% and a corresponding increase in the discount rate to 16.5%? The Profitability Index slightly increases because there are increase in revenues, which increases the Profitability Index, and increase in discount rate that does not affect the Profitability Index. The Profitability Index slightly increases because the increase in revenues is offset by the increase in the discount rate, since a higher discount rate decreases the Net Present Value and therefore the Profitability Index. The Profitability Index slightly decreases because the increase in discount rate overshadows any benefits form the increase in revenue. The Profitability Index slightly decreases because the increase in revenues does not affect the Profitability Index, while the increase in discount rate generally decreases the Profitability IndexStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started