The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A$,$ B$,$ and C as

follows:

Year P

Year Project I Project II Project III

$0-$$$150,000-$$$300,000-$$$150,000$

$1110,000200,000120,000$

$2110,000200,00090,000$

Suppose the relevant discount rate is $12$ percent a year.

a$.$ Compute the profitability index for each of the three projects.

b$.$ Compute the NPV for each of the three projects.

c$.$ Suppose these three projects are independent. Which project$($s$)$ should Amaro accept based on the

profitability index rule?

d$.$ Suppose these three projects are mutually exclusive. Which project$($s$)$ should Amaro accept based on the

profitability index rule?

e$.$ Suppose Amaro$$s budget for these projects is $$450,000.$ The projects are not divisible. Which project$($s$)$

should Amaro accept?

$4-$ The future Corporation wants to set up a private cemetery business. According to the CFO, business is

$$looking up$.$ As a result, the cemetery project will provide a net cash inflow of $$290,000$ for the firm during

the first year, and the cash flows are projected to grow at a rate of $5$ percent per year forever. The project

requires an initial investment of $$3,900,000.$

a$.$ If future Corporation requires a return of $11$ percent on such undertakings, should the cemetery business

be started?

b$.$ The company is somewhat unsure about the assumption of a growth rate of $5$ percent in its cash flows. At

what constant growth rate would the company just break even if it still required a return of $11$ percent on

investment?

$-$ What are the main problems $($disadvantages$)$ in IRR and Profitability index?

$-$Discuses how you can solve the problems that are specific to Mutually exclusive projects, and thus help

you in making your decision regarding the project: