Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 15QP
Profitability Index versus
- a. Based on the profitability index decision rule, rank these investments.
- b. Based on the NPV, rank these investments.
- c. Based on your findings in (a) and (b), what would you recommend to the CEO of the company and why?
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Students have asked these similar questions
Suppose the following two independent investment opportunities are available to a
company. The appropriate discount rate is 8 percent.
Year
O
1
2
3
Project
Alpha
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b.
2,300
2,200
1,450
a. Compute the profitability index for each of the two projects. (Do not round
intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
Project Alpha
Project Beta
Project Beta
-$ 6,100
1,350
4,500
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Profitability Index
Which project(s), if either, should the company accept based on the profitability index
rule?
Project Alpha
O Project Beta
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O Both projects
Find the profitability index for Oman Air conditioner Company if the initial
investment is 4000 OMR and the cash Inflows are as follows: Year 1=1350
OMR; Year 2 =1400 OMR; Year 3-1450 OMR and Year 4=1500 OMR. Use
discount rate as 5%.
Select one:
Answer the following lettered questions on the basis of the information in this table:
Amount of R&D,
$ Millions
Expected Rate of
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$ 10
16
20
14
30
12
40
10
50
8
60
6
Instructions: Enter your answer as a whole number.
a. If the interest-rate cost of funds is 8 percent, what is this firm's optimal amount of R&D spending?
million
%24
Chapter 5 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - International Investment Projects In March 2014,...Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Calculating Payback Period and NPV Maxwell...Ch. 5 - Calculating Payback An investment project provides...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Prob. 5QPCh. 5 - Calculating IRR Compute the internal rate of...Ch. 5 - Calculating Profitability Index Bill plans to open...Ch. 5 - Calculating Profitability Index Suppose the...Ch. 5 - Cash Flow Intuition A project has an initial cost...Ch. 5 - Prob. 10QPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Problems with Profitability Index The Coris...Ch. 5 - Prob. 13QPCh. 5 - Comparing Investment Criteria Wii Brothers, a game...Ch. 5 - Profitability Index versus NPV Hanmi Group, a...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Comparing Investment Criteria The treasurer of...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QPCh. 5 - NPV and Multiple IRRs You are evaluating a project...Ch. 5 - Payback and NPV An investment under consideration...Ch. 5 - Multiple IRRs This problem is useful for testing...Ch. 5 - NPV Valuation The Yurdone Corporation wants to set...Ch. 5 - Calculating IRR The Utah Mining Corporation is set...Ch. 5 - Prob. 25QPCh. 5 - Calculating IRR Consider two streams of cash...Ch. 5 - Calculating Incremental Cash Flows Darin Clay, the...Ch. 5 - Prob. 28QPCh. 5 - Prob. 1MCCh. 5 - Seth Bullock, the owner of Bullock Gold Mining, is...
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