Consider a project with initial investment of Birr 25,000 generating the following cash flows over 4 years. Year Project cash flow (Birr) 0 (25,000) 1 5,000 2 7,000 3 13,000 4 16,000 ii.1 Based on the above details compute the following: Internal Rate of Investment (IRR) Profitability Index (PI) ii.2 Do you accept this project for investment? Give reason for your answer.
Consider a project with initial investment of Birr 25,000 generating the following cash flows over 4 years. Year Project cash flow (Birr) 0 (25,000) 1 5,000 2 7,000 3 13,000 4 16,000 ii.1 Based on the above details compute the following: Internal Rate of Investment (IRR) Profitability Index (PI) ii.2 Do you accept this project for investment? Give reason for your answer.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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- Consider a project with initial investment of Birr 25,000 generating the following cash flows over 4 years.
|
Year |
Project cash flow (Birr)
|
|
0 |
(25,000) |
|
1 |
5,000 |
|
2 |
7,000 |
|
3 |
13,000 |
|
4 |
16,000 |
ii.1 Based on the above details compute the following:
- Internal Rate of Investment (
IRR ) - Profitability Index (PI)
ii.2 Do you accept this project for investment? Give reason for your answer.
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=18%+ (19%-18%)*(429.4/(429.4+162.06), on this calculation
18% + 1% = 19%
Why did it remain 18% on the solution you sent?
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