Question
The treasurer of Banila co. has projected the cash flows of Project A, B, and C as follows: Year Project A Project B Project C
The treasurer of Banila co. has projected the cash flows of Project A, B, and C as follows:
| Year | Project A | Project B | Project C |
| 1 | -$405,000 | -$810,000 | -$405,000 |
| 2 | 297,000 | 540,000 | 324,000 |
| 3 | 297,000 | 540,000 | 243,000 |
Suppose the relevant discount rate is 12% per year.
i. Suppose these three projects are mutually exclusive. Which project(s) should Banila Co. accept based on the profitability index rule? Consider also the incremental cash flows of the project when the scales of the projects are different.
v. Suppose the company’s budget for these projects is $810,000. The projects are not divisible. Which project(s) should Banila Co. accept?
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i Profitability Index Rule Profitability Index PI is calculated by dividing the Present Value PV of ...
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Principles of Geotechnical Engineering
Authors: Braja M.Das
8th edition
978-1285499963, 1285499964, 1133108660, 978-1133108665
