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What is the profitability index of an investment in machine

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Reference no: EM131577900

1. Hunter Corporation has the following investment opportunities:

I. Machine A requires an initial investment of $10,000 and is projected to realize cash inflows of $4,000 in year 1, $6,000 in year 2, and $3,000 in year 3.

II. Machine B requires an initial investment of $16,000 and is projected to realize cash inflows of $9,000 in year 1, $6,000 in year 2, and $8,000 in year 3.

Hunter Corporation uses a hurdle rate of 15% when analyzing prospective investments. Assuming that these machines are mutually exclusive, the company would choose to invest in Machine A if it bases its selection on the:

A. internal rate of return method.

B. net present value method.

C. profitability index method.

?D. payback method.

2. Hunter Corporation has the following investment opportunities:

I. Machine A requires an initial investment of $10,000 and is projected to realize cash inflows of $4,000 in year 1, $6,000 in year 2, and $3,000 in year 3.

II. Machine B requires an initial investment of $16,000 and is projected to realize cash inflows of $9,000 in year 1, $6,000 in year 2, and $8,000 in year 3.

Hunter Corporation uses a hurdle rate of 15%. What is the profitability index of an investment in Machine B?

A. 0.93

B. 1.10

C. 1.34

D. 1.53

Reference no: EM131577900

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