You are analyzing two proposed capital investments with the following cash flows: Year Project X Project Y $20,000 $20,000 12,430 7,470 2 5,960 7,470 5,560 7,470 4. 1,920 7,470 The cost of capital for both projects is 10 percent. Calculate the profitability index (PI) for each project. (Do not round discount factors. Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answer to 4 decimal places, e.g. 1.2527.) The PI for project X is and the PI for project Y is Which project, or projects, should be accepted if you have unlimited funds to invest?
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project Y $20,000 $20,000 12,430 7,470 2 5,960 7,470 5,560 7,470 4. 1,920 7,470 The cost of capital for both projects is 10 percent. Calculate the profitability index (PI) for each project. (Do not round discount factors. Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answer to 4 decimal places, e.g. 1.2527.) The PI for project X is and the PI for project Y is Which project, or projects, should be accepted if you have unlimited funds to invest?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 11P
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Question 14 of 17
You are analyzing two proposed capital investments with the following cash flows:
Year
Project X
Project Y
0.
$20,000
- $20,000
1
12,430
7,470
5,960
7,470
3
5,560
7,470
4
1,920
7,470
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project. (Do not round discount factors. Round intermediate calculations to 2
decimal places, e.g. 15.25 and final answer to 4 decimal places, e.g. 1.2527.)
The PI for project X is
and the PI for project Y is
Which project, or projects, should be accepted if you have unlimited funds to invest?
If you have unlimited funds you should invest in
Which project should be accepted if they are mutually exclusive?
If they are mutually exclusive you should invest in
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