Question
Free Spirit Industries Inc. is considering investing $2,500,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year
Free Spirit Industries Inc. is considering investing $2,500,000 in a project that is expected to generate the following net cash flows:
| Year | Cash Flow |
|---|---|
| Year 1 | $350,000 |
| Year 2 | $425,000 |
| Year 3 | $475,000 |
| Year 4 | $500,000 |
Free Spirit Industries Inc. uses a WACC of 9% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this projects PI (rounded to four decimal places):
0.5039
0.6159
0.5319
0.5599
Free Spirit Industries Inc.s decision to accept or reject this project is independent of its decisions on other projects. Based on the projects PI, the firm should accept/reject the project.
By comparison, the NPV of this project is ( $) . On the basis of this evaluation criterion, Free Spirit Industries Inc. should invest/not invest in the project because the project will/will not increase the firms value.
A project with a negative NPV will have a PI that is equal, less than, greater than 1 ; when it has a PI of 1.0, it will have an NPV equal, less than, greater than 0 .
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Finance And Strategy
Authors: Belen Villalonga
1st Edition
1783504935, 978-1783504930
