Calculate profitability index of project, Basic Statistics

Your division has been allocated $15M for capital projects for the coming year. You've been able to identify five potential projects, as outlined in the table below, each of which will last 10 years.

Project Name

Initial Cost

Annual Cash Flows

Discount Rate

Alpha

8M

2M

6%

Bravo

7.5M

2.25M

9%

Charlie

4M

0.75M

3%

Delta

5M

0.6M

4%

Echo

2M

0.5M

10%

a. Show the profitability index of each project.

b. Which project(s) should the firm undertake?

c. Which project(s) would the firm undertake if capital is not rationed? 

 

 

 

Posted Date: 3/1/2013 12:05:53 AM | Location : United States







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