a profitabilty index (PI) of 1.45 indcates the project generates S0.45 of internal rate of return for every S100 invested plus is expected to earn the required rate of return. true/false
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- The Board of Directors at Senico Systems is considering investment in five independent projects, all of which can be considered to last indefinitely. The MARR is 12% per year. (a) Determine which projects should be selected on the basis of IROR if the investment limitation is $60,000. (b) Determine the overall rate of return if the funds not invested in a project are assumed to earn a rate of return equal to the MARR and the investment limitation is $60,000. Income, IROR, Project Investment, $ $/Year % per Year A −30,000 7,000 23.3 B −10,000 1,900 19.0 C −15,000 2,600 17.3 D −55,000 9,000 16.4 E −5,000 6,000 12.0Two mutually exclusive design alternatives are being considered the estimated cash flow's for each alternative are given below. The MARR is 12% per year. The decision-maker can select one of these alternatives, or decide to select none of them make a recommendation based on the following methods.Three mutually exclusive alternatives are being considered for the production equipment at a tissue paper factory. The estimated cash flows for each alternative are given here. (All cash flows are in thousands.)Which equipment alternative, if any, should be selected? The firm’s MARR is 20% per year. Please state your assumptions.
- The capitalized worth method a. Is applicable only if there is reason to believe a series of cash flows will extend indefinitely into the future b. Can be used in the absence of alternatives c. Is used for investments that have few, if any, positive returns d. All of the aboveThe American Pharmaceutical Company (APC) has a policy that all capital investments must have a five-year or less discounted payback period in order to be considered for funding. The MARR at APC is 9% per year. Is the above project able to meet this benchmark for funding? What is the payback period?Are the investment decisions based solely on an estimate of a project's profitability?
- In capital budgeting, when the present worth over the respective life of each project is used to select independent projects, all positive net cash flows are assumed to be: (a) Reinvested at the MARR through the end of the shortest-lived project (b) Reinvested at the internal rate of return of the project through the end of the longest-lived project (c) Reinvested at the MARR through the least common multiple of years of all of the projects (d) Reinvested at the MARR through the end of the longest-lived projectWhat do you know about the mathematical value of the internal rate of return of a project under each of the following conditions? a. The annual worth of the project is greater than zero. b. The annual worth of the project is equal to zero. c. The annual worth of the project is less than zero.A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4,231 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit. Identify seven combinations of project investments and a bank deposits which exhaust the budget. Which of the above combinations should the firm choose when the bank deposit rate is (i) 15% or (ii) 20%? Explain your answer and show your work. Suppose there is no option to deposit in the bank, but the projects are "divisible" (e.g. you may have 25% of project A). Which combination should the firm choose? Explain your answer and show your work. Use 15% as the deposit rate (discount rate).
- Assume you have a total of $200,000 to invest in two corporate stocks identified as Z1 and Z2. The overall rate of return you require on the $200,000 is 26% per year. (a) If $40,000 is invested in Z2 with an estimated i * Z2 of 14% per year, what value must i * Z1 exceed to realize at least 26% per year? (b) If the best return expected from the Z1 stock is 27%, determine the threshold level of investment in Z2 to maintain an overall ROR of 26% per year. Solve by hand or using Goal Seek, as instructed.The owner of a downtown parking lot has employed a civil engineering consultingfirm to advise her on the economic feasibility of constructing an office building onthe site. The project engineer has assembled the following data: The analysis period is to be 15 years. At the end of that time the salvage value is expected to be equal to the initial investment.MARR is 10%. What should the engineer recommend?For each of the following scenarios, state whether an incremental ROR analysis is required to select an alternative and state why or why not. Assume that alternative Y requires a larger initial investment than alternative X and that the MARR is 20% per year. (a) X has a rate of return of 22% per year, and Y has a rate of return of 20% per year. (b) X has a rate of return of 19% per year, and Y has a rate of return of 21% per year. (c) X has a rate of return of 16% per year, and Y has a rate of return of 19% per year. (d) X has a rate of return of 25% per year, and Y has a rate of return of 23%. (e) X has a rate of return of 20%, and Y has a rate of return of 22% per year.