Problem 8-22, Profitability Index
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
Determine the profitability index for a project. You are given cash flows for years 1 and 2 and then for years 3 and 4.
Determine the profitability index for a project. You are given cash flows for years 1 and 2 and then for years 3 and 4.
Calculate the profitability index for A and B and which project should you accept based on the profitability index rule. You are given C0, C1, and C2 for both projects.
Compute the profitability index for each project and determine which projects should be undertaken given capital rationing and also without the capital rationing constraint.
Calculate the NPV for projects A and B along with their profitability indexes. Determine which project is more attractive to a firm with unlimited funds and also determine which one is more attractive to a firm with limited funds.
Determine the NPV if you insulate your office, the IRR of this investment, and the payback period of insulating your office and saving money each year.
Given the cost of the project and its annual cash flows for the next couple of years, calculate the payback, determine whether it should be accepted, calculate the NPV, and based on this, whether it will be accepted. Finally, repeat the exercise with a different discount rate and state whether or not the firm’s decision changes as the discount rate changes.
Given the project’s life and payback period, determine whether the NPV would be positive or negative.
Given cash flows for three projects, A, B, and C, compute the payback for each, determine which to accept or reject. Finally, compute the NPV of each project give a cost of capital, and answer a true/false question about payback.
Determine the net present value NPV, the internal rate of return IRR, the payback period, the equilvalent annual cost, and equivalent annual savings for the furnace.
You are given two projects, A and B with 4 cash flows each Year 0, 1, 2, and 4. You are asked to determine which project to choose at various discount rates assuming that the two projects are mutually exclusive.