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    Profitability Index versus NPV.

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    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 higher NPV if the discount rate is 10 percent?
    b. Which has the higher profitability index?
    c. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay
    for its investment projects? Which project is most attractive to a firm that is limited in the
    funds it can raise?

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    Profitability Index Versus NPV.
    Consider these two projects

    Project A: C0= -$36, C1= +$20, C2= +$20, C3= +$20

    Project B: C0= -$50, C1= +$25, C2= +$25, C3= +$25

    a. Which project has the higher NVP if the discount rate is 10%?

    NPV is calculated by finding the present value of each cash flow, including both cash inflows and outflows, discounted at the project's cost of ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer:

    a. Which project has the higher NPV if the discount rate is 10 percent?
    b. Which has the higher profitability index?
    c. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay
    for its investment projects? Which project is most attractive to a firm that is limited in the
    funds it can raise?

    $2.19

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