If a project costing $40,000 has a profitability index of 1.00 and the discount rate was 8%, then the project's internal rate of return was Group of answer choices less than 8%. undeterminable. greater than 8%. equal to 8%.

If a project costing $40,000 has a profitability index of 1.00 and the discount rate was 8%, then the project's internal rate of return was Group of answer choices less than 8%. undeterminable. greater than 8%. equal to 8%.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 15PROB

See similar textbooks

Related questions

Q: You are analyzing a project and have developed the following estimates. The depreciation is $7,600 a…

A: The cash flow that is generated by a company from its primary business operation is term as the…

Q: Which of the following statements is true if the NPV of a project is - $4,000 (negative $4,000) and…

Q: Estimates for a construction project appear in the following table: Dear optimistic most likely…

A: Case Probability (Weight) Cost Annual Profit Optimistic 10% 60000 16000 Most Likely 80% 80000…

Q: AL Hajis LLC has calculated the profitability index for its project. A profitability index (PI) of…

A: Profitability Index: It is a financial measure that helps in calculating the worth of the project…

Q: Calculate the NPV and IRR for the following project with a discount rate of 10% - ncf yr 0 =…

A: Net present value (NPV) refers to computation of present values of all the cash inflows and outflows…

Q: The NPV of a project is $8,000. If the IRR is 12%, which of the following is the required rate of…

A: Solution:- Net Present Value (NPV) means the net value in today’s term after deducting present value…

Q: What is the opportunity cost of selecting a project with an NPV of $22,500 over another project with…

A: We are provided with two projects with net present values of $22,500 and $18,000 respectively.

Q: Calculate the NPV of each project. (Round your answers to the nearest whole dollar. Use parentheses…

A: NPV = Cash Inflows - Cash outflows = (Annual cash inflows * cumulative PV @ 12% for 7 years) - Cost…

Q: Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project…

A: The profitability index is one of the financial tools that determine the attractiveness of a project…

Q: A project is thought to have a 0.55 probability of making a profit of P400,000 and a 0.45…

A: EMV=Probability x affect If probability is to .55 and .45 =.55 x P400,000=P220,000 = .45 x…

Q: Suppose a project with a 6% discount rate yields R5000 for the next three years. Annual operating…

A: NPV is the first priority rule.

Q: You have two projects that met the payback period and accounting rate of return screenings…

A: The question is related to the Capital Budgeting. In the given question the payback period and…

Q: A project has an upfront cost of $100,000. The projects WACC is 12% and it’s net present value is…

A: Solution:- We know, Internal Rate of Return (IRR) is the rate of return the project is yielding. If…

Q: he chart below shows the initial investment and expected yearly payback for Project A and Project B…

A: Here we will have to use 2 tools of capital budgeting - payback period and ROI - to determine which…

Q: A project has the following estimated data: Price = $54 per unit Variable costs = $36 per unit…

A: Given data, Price(P)= $54 per unit Variable costs (v)= $36 per unit Fixed costs(FC) = $19,300…

Q: Given: The company has set a goal of 25% Rate of Return on any of its investments. For the Existing…

A: Capital budgeting is the process by which a corporation examines potential large projects or…

Q: A firm made the following estimates for a project: price per unit = $18, variable cost per unit =…

A: In best-case scenario, quantity and price per unit increases by 20% and costs (variable costs and…

Q: ompute the MIRR for Project Y and accept or reject the project with the cash flows shown as follows…

A: MIRR is modified internal rate of return in this reinvestment of the fund is considered that is why…

Q: Determine the average rate of return for a project that is estimated to yield total income of…

A: Introduction:- Average Rate of Return measures profitability of the investment. It is used in…

Q: A project requires an initial outlay of $80000 and produces a return of $20000 at the end of year 1,…

A: Solution:- IRR (Internal Rate of Return) means the rate at return the project is yielding. It is the…

Q: are considering an investment to a project that can generate yearly income of $10,000. If there is a…

A: The expected income is the most probable income considering the different probabilities that are…

Q: rence Corp. is considering the purchase of a new piece of equipment. When discounted at a hurdle…

A: Internal rate of the return at which the present value of cash inflows is equal to the present value…

Q: Determine the average rate of return for a project that is estimated to yield total income of…

A: Average rate of return = ? Initial investment = $608,000 Average investment = 1/2 (cost -…

Q: If a $300,000 investment has a project profitability index of 0.25, what is the netpresent value of…

A: Profitability Index of a project means ratio of present value of future cash flows of the project…

Q: A profitability index of 0.50 for a project means that The project returns 50% in present value for…

A: Profitability index is calculated by dividing present value of benefits by Investment amount

Q: Compute the payback statistic for Project Y and recommend whether the firm should accept or reject…

A: Answer - Payback Period - Payback Period is defined by calculating the time needed (usually…

Q: You have been assigned to perform a project selection based on profitability index. You have…

A: Profitability Index: It is a capital budgeting technique in which projects are ranked according to…

Q: Assume that the projected costs and benefits for this project are spread over four years as follows:…

A: A corporation goes through various projects and investments in its life and has to decide from time…

Q: An investor was offered a production line project, investment volume 0 0 2850 dollars, annual sales…

A: The question is related to the Return on Investment and Breakeven Point. The Return on Investment is…

Q: average rate of return for a project

A: Average annual income Total income/Number of years Total income $386,400 Number of years 4…

Q: The NPV of a project when discounted using a discount rate of 6% is positive $ 40,000. When the same…

A: Internal Rate of return (IRR) is the rate at which the NPV is zero.

Q: Compute the IRR statistic for Project X and note whether the firm should accept or reject the…

A: Let CFn be the cashflow in year n. Cost of capital = 10% Let r = IRR

Q: Calculate the profitability index for project X. B. Calculate the profitability for project Y C.…

A: Profitability index = 1 + Net Present Value/Initial Investment

Q: If the profitability index of a normal investment project is 0.5 and the initial investment required…

A: A Profitability index is a useful tool that is used by the management in order to the ranking of the…

Q: GeoWorld Systems uses a subset of the following questions during the interview process for new…

A: “Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: You are the head of the project selection team at SIMSOX. Your team is considering three different…

A: dust devils year cashflow 0 -550000 1 35000 2 275000 3 375000 NPV -138255.64

Q: A project has fixed costs of $2,100 per year, depreciation charges of $600 a year, annual revenue of…

A: a. Variable cost = Sales * 2/3 = 10800*2/3 =7200 Pretax Existing profits = Revenue-Variable cost -…

Q: A firm made the following estimates for a project: price per unit = $18, variable cost per unit =…

A: In best case scenario Variable cost is 20% lower = $7 -20% = $5.6

Q: You are analyzing a project and have developed the following estimates. The depreciation is $88,000…

A: In worst case scenario, lower bound should be considered for unit sales and price per unit and upper…

Q: Average Rate of Return Determine the average rate of return for a project that is estimated to…

A: Average rate of return can be calculated by net average income divided by average investment.

Q: Estimates for a construction project appear in the following table: Dear optimistic most likely…

A: Case Probability (Weight) Cost Annual Profit Optimistic 10% 60000 16000 Most Likely 80% 80000…

Q: The internal rate of return (IRR) of a certain project is 11 % and the capital investment is…

A: The internal rate of return (IRR) is a capital budgeting metric used to gauge the benefit of…

Q: A project has an up-front cost of sh.1000, 000. The project's WACC is 12% and its net present value…

A: Present worth (NPV) will be the difference between total present worth of cash inflows and total…

Q: You are considering the following two mutually exclusive projects. The required return on each…

Q: The most likely outcomes for a particular project are estimated as follows: Unit price Variable cost…

A: With reference to variable cost, the decrease in variable cost would be categorized as best case…

Q: essa Inc. has a project that costs $800,000. It has a 70% chance of a $1,500,000 payoff and a 30%…

A: Expected Profit or loss from the project can be calculated by subtracting the costs of the project…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

100%

If a project costing $40,000 has a profitability index of 1.00 and the discount rate was 8%, then the project's internal rate of return was

Group of answer choices

less than 8%.

undeterminable.

greater than 8%.

equal to 8%.

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

INTRODUCTION

VIEW

ANSWER

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Dinaro Inc. is looking at an investment project that has an NPV of ($5,000). The hurdle rate is 8%.
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
You are evaluating a project that costs $69,000 today. The project has an inflow of $148,000 in one year and an outflow of $59,000 in two years. What are the IRRs for the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) What discount rate results in the maximum NPV for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Using a required rate of return equal to 10 percent, compute the modified internal rate of return (MIRR) for a project that costs $80,000 and is expected to generate $33,000, $66,000, and -$10,950, respectively, during the next three years. Should the project be purchased? Do not round intermediate calculations. Round your answer to two decimal places. The project -Select- (should, should not) be purchase because the MIRR, that is %, is -Select- (greater than, lower than, equal to) the required rate of return.
Heckrwee Industries is considering a project that would require an initial investment of $101,000. The project would result in cost savings of $62,000 in year 1 and $70,000 in year 2. The internal rate of return is a.between 18% and 20%. b.between 16% and 17%. c.under 15%. d.None of these choices are correct.
A project has an upfront cost of $100,000. The projects WACC is 12% and it’s net present value is $10,000. Which of the following statements is most correct? The project should be rejected since it’s return is less than the WACC The projects internal rate of return is greater than 12% The projects modified internal rate of return is less than 12% All of the above None of the above
A firm is reviewing a project that has an initial cost of $85,000. The project will produce cash inflows, starting with year 1, of $10,000, $15,500, $23,600, $30,100, and finally in year five, $38,700. What is the profitability index if the discount rate is 14 percent?
The internal rate of return (IRR) of a certain project is 11 % and the capital investment is $400,000. What is the present worth of this project at MARR = 15 % ? Note : This is not an assignment question and not a graded question... Thank you
Please help to solve all the below :) What is the average return per year for a project that has an initial investment of $75,000 with an average return of $12,000 per year over 10 years? a) $1,080 b) $10,800 c) $4,500 d) $11,000 e) $3,200 Based on previous answer, what is the Return on investment (ROI) of this project? a) 8.5 b) 6 c) 4 d) 5.5 e) 3 Which of the following best describes a cost-bound project? a) A project that is constrained by a hard deadline in which the delivery timing is as important as the delivery itself b) A project that is constrained by safety standards in which the safety aspect of the project is as important as the delivery itself c) A project that is constrained by a hard budget in which the cost of the project is as important as the delivery itself d) A and C e) All of the above What would be the discount factor at year 3 of a 4-year project, if the discount rate is 6%? a) 0.78 b) 0.84 c) 0.89 d) 0.96 e) None of the above
You have two projects that met the payback period and accounting rate of return screeningsidentically. Project 1 produced an NPV of Php 450,000 and had an IRR between 5% and 8%.Project 2 produced a NPV of Php 350,000 and had an IRR of 10%. This leaves you with a difficultchoice, since each alternative has a measurement that exceeds the other and the other variablesare the same. Which project would you invest in and why?
Estimates for a construction project appear in the following table: Dear optimistic most likely pessimistic Cost ($) 60,000 80,000 120,000 Annual profit ($) 16,000 15,000 13,500 Useful life (years) 10 10 10 Residual value ($) 0 0 0 Calculate the weighted average for costs and benefits, assigning 4 times more weight to the most probable estimate. Calculate the average internal rate of return. a)Weighted Average of Cost b)Weighted Average of Annual Profits c)Average internal rate of return Submit calculations
A video rental store will cost $650,000 to open. Assuming annual sales of $1 million, variable costs of 35 percent, fixed costs of $300,000, depreciation of $100,000, and a tax rate of 35 percent, calculate the NPV of the project over a 10-year horizon (no inflation or salvage value assumed) with a 12 percent cost of capital. Conduct a sensitivity analysis by allowing investment, sales, variable costs, and fixed costs to vary by plus/minus 10 percent from their original estimates. Which variable appears to affect profitability the most? What does the sensitivity analysis suggest the investor do?