The treasurer of Tropical Fruits, Inc., has projected the cash flows of Projects A, B, and C as follows: Project A Project B Project C 0 200,000 365,000 200,000 1 129,000 226,000 139,000 2 129,000 226,000 109,000 Suppose the relevant discount rate is 8 percent per year. a. Compute the profitability index for each of the three projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Profitability index Project A Project B Project C b. Compute the NPV for each of the three projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) NPV Project A $ Project B $ Project C $ c. Suppose these three projects are independent. Which project(s) should the company accept based on the profitability index rule? Project A Project B Project C Project A, Project B, Project C Project A, Project B Project A, Project C Project B, Project C d. Suppose these three projects are mutually exclusive. Which project(s) should the company accept based on the profitability index rule? Project A Project B Project C Project A, Project B, Project C Project A, Project B Project A, Project C Project B, Project C e. Suppose the budget for these projects is $565,000. The projects are not divisible. Which project(s) should be accepted? Project A Project B Project C Project A, Project B, Project C Project B, Project C Project B, Project A Project A, Project C

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 9P

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The treasurer of Tropical Fruits, Inc., has projected the cash flows of Projects A, B, and C as follows:

	Project A	Project B	Project C
0	200,000	365,000	200,000
1	129,000	226,000	139,000
2	129,000	226,000	109,000

Suppose the relevant discount rate is 8 percent per year.

a. Compute the profitability index for each of the three projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Profitability index
Project A
Project B
Project C

b. Compute the NPV for each of the three projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	NPV
Project A	$
Project B	$
Project C	$

c. Suppose these three projects are independent. Which project(s) should the company accept based on the profitability index rule?

Project A
Project B
Project C
Project A, Project B, Project C
Project A, Project B
Project A, Project C
Project B, Project C

d. Suppose these three projects are mutually exclusive. Which project(s) should the company accept based on the profitability index rule?

Project A
Project B
Project C
Project A, Project B, Project C
Project A, Project B
Project A, Project C
Project B, Project C

e. Suppose the budget for these projects is $565,000. The projects are not divisible. Which project(s) should be accepted?

Project A
Project B
Project C
Project A, Project B, Project C
Project B, Project C
Project B, Project A
Project A, Project C

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