Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The Michner Corporation is trying to choose between the following two mutually exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
-$ 76,000
-$ 34,000
1
29,000
11,000
23,500
17,500
2
3
36,000
42,000
a-1. If the required return is 12 percent, what is the profitability index for each project?
Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.
a-2. If the company applies the profitability index decision rule, which project should it take?
b-1. If the required return is 12 percent, what is the NPV for each project?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
b-2. If the company applies the net present value decision rule, which project should it take?
a-1. Project I
a-2.
Project II
b-1. Project I
b-2.
Project II
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Transcribed Image Text:The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) 0 -$ 76,000 -$ 34,000 1 29,000 11,000 23,500 17,500 2 3 36,000 42,000 a-1. If the required return is 12 percent, what is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. a-2. If the company applies the profitability index decision rule, which project should it take? b-1. If the required return is 12 percent, what is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. If the company applies the net present value decision rule, which project should it take? a-1. Project I a-2. Project II b-1. Project I b-2. Project II
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