### Cash flow payback

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##### Reference no: EM13272943

Assume you have a capital budget of \$300 and the following profitability indices and costs for five possible projects:a.)Which combination of projections maximizes NPV?[Show calculations.]

NPV = PI*C

A.1.45*100=145

B.1.4*150=210

C.1.35*175=236.25

D.1.2*100=120

E.1.1*25=27.5

***Best combination would be A+D+E = \$292.5 leaving \$7.5 for dividends/buyback

b)Would the ranking change if the PI for Project E was 1.18?Why?

NO, ranking would not change as 1.18*25= 29.5

A+D+E = 294.5 still leaving \$5.5 for dividends/buybacks

c) Describe carefully what analysis must precede reliable PI estimates.

NOT SURE: PI = NPV/Cost ???

9)The annual cash flows savings from investing for \$75 in a piece of equipment in year zero lasting four years has the following cash flow estimates:

a.Cash flow payback [show calculations}
Year 1: 75-50 = 25

Year 2: 25/75=.33

Cash Flow Payback = 2.33 Years

b. Discounted payback period at 10%

c. NPV at 10%?

Which measure is best and why?

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