Question
Problem 5-17 Comparing Investment Criteria The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A, B, and C as follows:
Problem 5-17 Comparing Investment Criteria
The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A, B, and C as follows:
Year | Project A | Project B | Project C | ||||||
0 | $ | 160,000 | $ | 310,000 | $ | 160,000 | |||
1 | 112,000 | 204,000 | 122,000 | ||||||
2 | 112,000 | 204,000 | 92,000 | ||||||
Suppose the relevant discount rate is 10 percent per year. a. Compute the profitability index for each of the three projects. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
Profitability index | |
Project A | |
Project B | |
Project C | |
b. Compute the NPV for each of the three projects. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
NPV | ||
Project A | $ | |
Project B | $ | |
Project C | $ | |
c. Suppose these three projects are independent. Which project(s) should Amaro accept based on the profitability index rule?
Project A | |
Project B | |
Project C | |
Project A, Project B, Project C | |
Project A, Project B | |
Project A, Project C | |
Project B, Project C |
d. Suppose these three projects are mutually exclusive. Which project(s) should Amaro accept based on the profitability index rule?
Project B | |
Project A | |
Project C | |
Project A, Project B | |
Project A, Project B, Project C | |
Project A, Project C | |
Project B, Project C |
e. Suppose Amaros budget for these projects is $470,000. The projects are not divisible. Which project(s) should Amaro accept?
Project A | |
Project B | |
Project C | |
Project A, Project B, Project C | |
Project B, Project C | |
Project B, Project A | |
Project A, Project C |
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