Question
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
| 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 | $ | 155,000 | $ | 305,000 | $ | 155,000 | |||
| 1 | 111,000 | 202,000 | 121,000 | ||||||
| 2 | 111,000 | 202,000 | 91,000 | ||||||
| Suppose the relevant discount rate is 9 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.) |
| 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.) |
| 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 Amaros budget for these projects is $460,000. The projects are not divisible. Which project(s) should Amaro accept? |
|
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The Finance Book
Authors: Stuart Warner, Si Hussain
2nd Edition
1292401982, 978-1292401980
