Respuesta :
Answer:
a profitability index P1=1.27
profitability index P2= 1.41
b NPV P1 = $14145.01
NPV P2 = $6630.3
c YES ANSWERS ARE DIFFERENT due to fact that cash flows in P1 is higher than in P2
Step-by-step explanation:
profitability index or = present value of an investment cash flows=67145.01
benefit cost ratio initial cost 53000
For project 1 or P1
cost of capital 10 % = 1.27
initial investment = $53,000 since year 0
Year Cash flows (P1)$ present value of future cash flows PV
1 27,000 24545.46
2 27,000 22314.05
3 27,000 20285.50
Total = 67145.01
use the formula of present value of future cash flows = C/(1+i)ⁿ
C = cash = 27000
i = interest = 10% = 10/ 100 = 0.1
n = year = 1
year 1 = 27000/(1+0.1)¹ = 24545.46
year 2 = 27000/(1.1)² = 22314.05 note n = 2
year 3 = 27000(1.1)³ = 20285.50
Profitability index = 1.27 > 1 thus it should be accepted
profitability index or = present value of an investment cash flows=22630.30
benefit cost ratio initial cost 16000
For project 1 or P1
cost of capital 10 % = 1.41
initial investment = $16,000 since year 0
Year Cash flows (P2)$ present value of future cash flows PV
1 9,100 8272.73
2 9,100 7520.6
3 9,100 6836.97
Total = 22630.30
use the formula of present value of future cash flows = C/(1+i)ⁿ
C = cash = 9100
i = interest = 10% = 10/ 100 = 0.1
n = year = 1
year 1 = 9100/(1+0.1)¹ = 8272.73
year 2 = 9100/(1.1)² = 7520.6 note n = 2
year 3 = 9100(1.1)³ = 6836.97
Profitability index = 1.41 > 1 thus it should be accepted
Profitability index of P1 = 1.27 AND P2 1.41 SO Weiland Computer Corporation SHOULD TAKE P2
b Net Present Value (NPV) decision rule =∑ pv - initial investment required
P1 = 67145.01 - 53,000 = $14145.01
P2 = 22630.30 - 16000 = $6630.3
Weiland Computer should take P1 since P1 > P2 that is $14145.01 >$6630.3
C YES ANSWERS ARE DIFFERENT due to fact that cash flows in P1 is higher than in P2
a. Based on the two projects' profitability indexes, project two (P2) should be accepted.
b. Based on the Net Present Values of the two projects, project one (P1) should be accepted.
c. The answers in (a) and (b) are different. Project One (P1) is accepted based on its larger NPV than P2's.
On the other hand, based on a higher Profitability Index, Project Two is accepted.
Data and Calculations:
Year 0 1 2 3
Cash flows (P1) -$53,000 27,000 27,000 27,000
Cash flow (P2) -$16,000 9,100 9,100 9,100
Discount rate = 10%
Project One (P1):
N (# of periods) = 3 years
I/Y (Interest per year) = 10%
PMT (Periodic Payment) = $27,000
FV (Future Value) = $0
Results:
PV = $67,145.00
Sum of all periodic payments = $81,000 .00
Total Interest = $13,855.00
Profitability index of P1 = 1.2669 ($67,145/$53,000)
NPV of P1 = $14,145 ($67,145 - $53,000)
Project Two (P2):
N (# of periods) = 3 years
I/Y (Interest per year) = 10%
PMT (Periodic Payment) = $9,100
FV (Future Value) = $0
Results:
PV = $22,630.35
Sum of all periodic payments = $27,300.00
Total Interest $4,669.65
Profitability index of P2 = 1.4144 ($22,630.35/$16,000)
NPV of P2 = $6,630.35 ($22,630.35 - $16,000)
Thus, profitability index and NPV offer different decisions for the two projects.
Learn more about NPV and Profitability Index for decision-making here: https://brainly.com/question/16968024 and https://brainly.com/question/17204474.
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