Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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6. Fabulous Fabricators needs to decide how to allocate space in its production facility this year. It is considering the following contracts:
a. What are the profitability indexes of the projects?
b. What should Fabulous Fabricators do?
**round to two decimal places**
Transcribed Image Text:a. What are the pr
Data table
The profitability in
(Click on the following icon in order to copy its contents into a spreadsheet.)
The profitability in
Contract
Use of Facility
100%
NPV
The profitability in
$1.95 million
$0.95 million
$1.47 million
58%
b. What should Fa
42%
O A
Since the
Transcribed Image Text:Fabulous Fabricators needs to decide how to allocate space in its production facility this year. It is considering the following contracts:
a. What are the profitability indexes of the projects?
b. What should Fabulous Fabricators do?
a. What are the profitability indexes of the projects?
The profitability index for contract A is
(Round to two decimal places.)
The profitability index for contract B is
(Round to two decimal places.)
The profitability index for contract C is
(Round to two decimal places.)
b. What should Fabulous Fabricators do? (Select the best choice below.)
O A. Since the profitability index for C is the largest, it should choose C.
O B. It should take the two projects with the highest profitability indexes: C and A.
O C. Since it has the capacity to do both B and C and NPVe + NPVC is greater than NPVA, it should do both B and C.
O D. Since the NPV of A is the largest, it should choose A.
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