For a project that has an initial cash outflow followed by cash inflows, the profitabilityindex (PI) is equal to the present value of cash inflows divided by the cost of capital.Truekalse

Profitability Index The Profitability Index (PI) is the ratio between the present value of cash…

Answered: For a project that has an initial cash…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1CMA

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To calculate net present value of a project with normal cash flows, find the present value of the expected cash flows, and subtract A) retained earnings. B) the cost of the investment. C) the factor loading. D) the payback period.
This method solves for the interest rate that equates the equivalent worth of a project's cash outflows (expenditures) to the equivalent worth of cash inflows (receipts or savings). O A. Payback Period O B. Profitability Index O C. Rate of Return O D. MARR
I) In IRR method the cash flows from a project are reinvested at the cost of capital. II) IRR is the rate at which present value of cash inflows is equal to the amount of initial investment. III) It is the rate at which the NPV of the project is positive. IV) IRR method is based on concept of time value of money. V) In IRR method the cash flows from a project are reinvested at the IRR itself. Which of the following statements are incorrect about Internal rate of return (IRR): А. I, II and IV. В. Ш and V C. I, III and IV. D. I only.
I) In IRR method the cash flows from a project are reinvested at the cost of capital. 1) II) IRR is the rate at which present value of cash inflows is equal to the amount of initial investment. III) It is the rate at which the NPV of the project is positive. IV) IRR method is based on concept of time value of money. V) In IRR method the cash flows from a project are reinvested at the IRR itself. Which of the following statements are incorrect about Internal rate of return (IRR): A. I, III and IV. B. III and V C. I, III and IV. D. I only.
The rate of return for a capital investment represented by the following cash flow table is most nearly:
A project's IRR: A) All of these answers are correct. B is the average rate of return necessary to pay back the project's capital providers. C is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity. D will change with the cost of capital.
Cash flows that are directly associated with a project are called O sunk costs. terminal costs. incremental cash flows. current cash flows.
how many of the following investment criteria always use all of a projects cash flows in their calculation? -NPV -Payback period -IRR -Profitability index
For a normal project, profitability index is the ratio of: a. The net present value of the project’s net cash flow to the project’s initial investment.b. The net present value of the project’s net cash flows to the project’s IRR.c. The present value of the project’s cash flows to the project’s IRR.d. The present value of the project’s cash inflows to the project’s initial investment.e. All of the above properly describe the profitability index.
Mathematically, how can we determine the rate of return for a project's cash flow?
The length of time required for an investment to generate cash flows sufficient to recover its initial cost is the: O net present value internal rate of return payback period profitability index discounted payback period
The internal rate of return method assumes that the cash flows over the life of the project are reinvested ata. the risk-free rate.b. the firm's cost of capital.c. the computed internal rate of return.d. the market capitalization rate.

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For a project that has an initial cash outflow followed by cash inflows, the profitability index (PI) is equal to the present value of cash inflows divided by the cost of capital.