For a project that has an initial cash outflow followed by cash inflows, the profitabilityindex (PI) is equal to the present value of cash inflows divided by the cost of capital.Truekalse

Profitability Index The Profitability Index (PI) is the ratio between the present value of cash…

Answered: For a project that has an initial cash…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 4MC

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Similar questions

Calculate the cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?
The expected period of time that will elapse between the date of a capital investment and thecomplete recovery of the amount of cash investedis called: A.The average rate of return period B.The cash payback period C.The net present value period D.The internal rate of return period
Calculate the project cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?
This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero A. internal race of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. future value method
Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value method
Why are interest charges not deducted when a projects cash flows are calculated for use in a capital budgeting analysis?
To make a capital investment decision, a manager must a. estimate the quantity and timing of cash flows. b. assess the risk of the investment. c. consider the impact of the investment on the firms profits. d. choose a decision criterion to assess viability of the investment (such as payback period or NPV). e. All of these.
Define each of the following terms: Capital budgeting; payback period; discounted payback period Independent projects; mutually exclusive projects Net present value (NPV) method; internal rate of return (IRR) method; profitability index (PI) Modified internal rate of return (MIRR) method NPV profile; crossover rate Nonnormal cash flow projects; normal cash flow projects; multiple IRRs Reinvestment rate assumption Replacement chain; economic life; capital rationing; equivalent annual annuity (EAA)
To calculate net present value of a project with normal cash flows, find the present value of the expected cash flows, and subtract A) retained earnings. B) the cost of the investment. C) the factor loading. D) the payback period.
For a normal project, profitability index is the ratio of: a. The net present value of the project’s net cash flow to the project’s initial investment.b. The net present value of the project’s net cash flows to the project’s IRR.c. The present value of the project’s cash flows to the project’s IRR.d. The present value of the project’s cash inflows to the project’s initial investment.e. All of the above properly describe the profitability index.
The internal rate of return method assumes that the cash flows over the life of the project are reinvested ata. the risk-free rate.b. the firm's cost of capital.c. the computed internal rate of return.d. the market capitalization rate.
To project the appropriate anticipated cash flow for a project, we must put all cash flow knowledge together. This includes of the incremental cash flow. OA) the amount but not the timing B) the timing C) the amount D) both the amount and timing 33

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For a project that has an initial cash outflow followed by cash inflows, the profitability index (PI) is equal to the present value of cash inflows divided by the cost of capital.