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 | $ | 190,000 | $ | 355,000 | $ | 190,000 | |||
| 1 | 123,000 | 222,000 | 133,000 | ||||||
| 2 | 123,000 | 222,000 | 103,000 | ||||||
| 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 $545,000. The projects are not divisible. Which project(s) should Amaro accept? |
|
Step 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
How To Understand Business Finance
Authors: Bob Cinnamon, Brian Helweg-Larsen
2nd Edition
0749460202, 978-0749460204
