Profitability Index versus NPV: Compare two projects
Not what you're looking for?
Profitability Index versus NPV. Consider these two projects:
Project C0 C1 C2 C3
A -$36 +$20 +$20 +$20
B - 50 + 25 + 25 + 25
a. Which project has the highest NPV if the discount rare is 10%?
b. Which has the higher profitability index?
c. Which project is most attractive to a firm that can raise a unlimited amount of funds to pay for investment project?
d. Which project is most attract to a firm that limited in the funds it can raise?
Purchase this Solution
Solution Summary
The solution explains how to calculate the profitability index and NPV and decide about project attractiveness
Solution Preview
a. NPV is calculated as Sum (PV of inflows) - initial investment
The NPV for Project A is
-36 + 20/1.1 + 20/1.1^2 + 20/1.1^3 = $13.74
The NPV for Project B is
-50 + 25/1.1 + 25/1.1^2 + 25/1.1^3 = $12.17
At a discount rate of 10%, Project A has a ...
Purchase this Solution
Free BrainMass Quizzes
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.