You are considering the following projects but have limited funds to invest and can't take them all. Using the profitability index, rank the projects in the order in which you would accept them. That is, rank them from best to worst. Project Initial Investment NPV

You are considering the following projects but have limited funds to invest and can't take them all. Using the profitability index, rank the projects in the order in which you would accept them. That is, rank them from best to worst. Project Initial Investment NPV

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 4Q

See similar textbooks

Related questions

Q: Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for…

A: NPV is a technique that helps the company to analyze the viability of the project i.e. the company…

Q: Mr. Big, your boss, will only agree to accept a project that, as a minimum, provides a rate of…

A: Before accepting a new project, profitability is evaluated so that business can grow easily with new…

Q: If we are comparing projects of unequal sizes (requiring unequal amounts of investment), screening…

A: formula for NPV: NPV=-initial investment+pv of future cashflow

Q: A firm has two potential investment projects. The project information is summarised in the table…

A: Standard deviation of project A = 175 Standard deviation of project B = 370 Coefficient of variation…

Q: Use the information below and help the management in choosing the most desirable Project using all…

A: The question is based on the concept of Financial Management. As per the Bartleby guidelines we are…

Q: What will happen to the internal rate of return (IRR) of a project if the discount rate is decreased…

A: IRR is the rate where the NPV of the project is ZERO

Q: The general rule for using the weighted-average cost of capital (WACC) in capital budgeting…

A: WACC is the Weighted Average Cost of Capital of a company. A company's capital consists of debt and…

Q: dependent capital investment project requires an initial cash outflow at time 0, followed by cash…

A: NPV is net present value that is difference between present value of cash flow and initial cash flow…

Q: Suppose that you could invest in the following projects but have only $24,480 to invest. Which…

A: The project with Higher net present value will be selected because this the amount net amount that…

Q: Many times, project decision makers do not rely solely on financialhurdles, such as return on…

A: Intangible factors are those factors which can not be seen touched or felt. These factors are really…

Q: With limited finance and a number of project proposals at hand, select that package of projects…

A: Financing is a method through which an individual or a corporation finances its operations and…

Q: Use the information below and help the management in choosing the most desirable Project using a.…

A: Capital budgeting is referred as the process of decision making which is used by companies to…

Q: If we are comparing projects of unequal sizes (requiring unequal amounts of investment), screening…

A: Rank the project based on NPV of the project based on highest to lowest.

Q: Use the information above and help the management in choosing the most desirable Project using…

A: Investment appraisal techniques such as NPV, PI, payback period(PBP) and discounted PBP are used for…

Q: choosing the most desirable Project using Payback period а. b. Discounted payback c. Net Present…

A: The calculations and the steps can be seen below:

Q: a. Calculate the expected NPV for both projects. Can the question be resolved with this information…

A: Expected NPV: It is the weighted average of all NPVs. It is resulted when the weighted values are…

Q: Discounted Investment in year 3: Cumulative Revenue as of year 5: Cumulative Investment as of year…

A: NOTE: As per our policy, we only answer up to three sub-parts. Therefore the first three…

Q: Which of the following statements regarding the net present value rule and the rate of return rule…

A: The question is based on the concept of Financial analysis.

Q: Two investors are considering the same project. The net present worth of the project will be higher…

A: The question is True or False.

Q: Help question 21

A: NPV = $ 300

Q: Project 1 50% $120,000 50% -$50,000 Project 2 30% $100,000 40% $50,000 30% -$60,000 Project 3 70%…

A: EMV stands fro expected monetary value. It is nothing but a method to quantify risk.EMV=probability…

Q: Consider the following investment projects: Which of the following is true? a) All projects…

A: Simple projects are projects in which the sign change in net cash flow is only once. Non-simple…

Q: How would you rank the following alternative risky investment projects? Explain your answer…

A: Investment decision refers to the decisions taken by either potential investors or existing…

Q: Finance Question

A: Given:

Q: If three investment alternatives all have some degree of risk and different expected returns, which…

A: If three investment alternatives all have some degree of risk and different expected returns. The…

Q: Compare and contrast the beta of the project and explain how it will affect the return on investment…

A: Beta coefficient shows the systematic risk of the assets. In simple words, the beta coefficient…

Q: Which of the following would cause a project to have a lower net present value, thereby making the…

A: Capital budgeting techniques include: Net Present Value Proﬁtability Index Internal Rate of Return…

Q: You should accept a project when the ?: net present value is negative. profitability index is…

A: Honor code- Since you have asked multiple questions, we will solve only the first question for you.…

Q: Which of the following projects would you feel safest in accepting? Assume the opportunity cost of…

A: NPV: NPV is also called net present value. NPV is the difference between the present value of cash…

Q: Answer the two questions below: a) What is the purpose of a project risk analysis, and why is it…

A: As you have asked multiple questions, we will solve the first question as per Bartleby policy.…

Q: If an investment project has a negative net present value (NPV), which one of the following…

Q: Indicate whether its True or False. Then write the explanation! The twin advantages with using…

A: Capital budgeting techniques are used to determine whether the investment should be undertaken or…

Q: a. For each alternative project compute the net present value. b. For each alternative project…

A: Net Present Value (NPV) is measure through which we evaluate the financial viability of any project.…

Q: Modigliani and Associates has forecasted the following payoffs from a project: Outcome…

A: In the given question we require to calculate the expected value of the outcomes for Modigliani and…

Q: Should companies bid for a project with a price under the "project bid price"? No, this will not…

A: The project bid price is the final price of the project which the buyer is willing to pay.…

Q: If you apply the payback decision rule, which investment will you choose? Why? (b) If you apply the…

A: YEAR CASH FLOW A CASH FLOW B 0 -200000 -50000 1 40000 25000 2 60000 22000 3 80000…

Q: Which of the following statements is correct? a. Since investors prefer more return and less…

A: NPV formula: NPV = -INITIAL CASHFLOW+ PRESENT VALUE OF FUTURE CASHFLOW

Q: Which of the following theory is applicable to the following situation? A manager needs to raise…

A: In financial management, financing refers to the raising of funds by issue different types of…

Q: At MARR of 12%, which project would you select? a. Select A as it has a higher rate of return. b.…

A: Net Present Value is the difference between the current value of cash inflow and cash outflow for a…

Q: Which of the following statements is (or are) true? (Select all correct responses.] O For a…

A: Correct statements are; 1) 2) 4) 5)

Q: Calculate the Internal Rate of Return for the project. b. If you were the financial manager, would…

A: The internal rate of return can be calculated as follows : Calculations for above :

Q: If the net present value of a proposed investment is negative, what is the discount rate used? Less…

A: Net present value (NPV) is the significant present value difference between cash outflows and cash…

Q: disadvantage of using the accounting rate of return to evaluate investment alternatives is that…

A: Accounting rate of return (ARR) is a way of comparing profits that a business or a project is…

Question

You are considering the following projects but have
limited funds to invest and can't take them all. Using the
profitability index, rank the projects in the order in which
you would accept them. That is, rank them from best to
worst.
Project
Initial Investment
NPV

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

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

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, finance and related others by exploring similar questions and additional content below.

Similar questions

Suppose that your organization is deciding which of four projects to bid on, as summarized in the following table. Assume that all up-front investments are not recovered, so they are shown as negative profits. Draw a diagram and calculate the EMV for each project. Write a few paragraphs explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer.
Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV. Provide explanation for the choice
What Suppose your organization is deciding which of four projects to bid on. Information on each is in the table below. Assume that all up-front investments are not recovered, so they are shown as negative profits. Draw a diagram and calculate the EMV for each project. Write a few paragraphs explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer
Two investment projects are under analysis and, due to budget constraints, only one of them can be selected. The investor should select the project: a. Based on absolute metric of value b. With higher internal rate of returnc. With lower discounted payback period
I asked this question before, but for some reason, even though it was answred I cannot see it, it marks an error when I try to open it. So here it is again: Comparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value. Thank you!
For capital budgeting projects, which of the following statements is CORRECT? Group of answer choices An extremely high required rate of return should be used to find the NPV of a relatively low risk project. All of these answer choices are correct. If a project’s NPV is less than zero, then its IRR must be less than the required rate of return. If a project’s NPV is greater than zero, then its IRR must be less than zero. The lower the required rate of return, the lower the calculated NPV.
You should accept a project when the ?: net present value is negative. profitability index is positive. payback period exceeds the required period. AAR is greater than the required return. 7. Which one of the following statements is correct? The payback period is also referred to as the benefit-cost ratio. The internal rate of return can be reliably used for all independent projects. The profitability index is used when the investment funds are limited. The net present value should not be used to rank mutually exclusive projects. 8. You should accept a project when the ?: net present value is negative. profitability index is less than 1 but greater than 0. discounted payback period is less than the required period. AAR is less than the required return. 9. The crossover point ? : is used to determine which one of two internal rates of return for a project should be used when determining if a project should be accepted. 2. is the…
What are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?
Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must have a higher NPV than 2. e. If a project with normal cash flows has an IRR greater than WACC, the project must have a positive NPV. You purchase a house for $250,000. After you make your down payment of $50,000, you are financing $200,000 for 30 years at an annual percentage rate of 5.4%. How much are your monthly payments? Select one: a. Less than $1,000 b. Between $1,000 and $1,050 c. Between $1,050 and $1,100 d. Between $1,100 and $1,150 e. Greater than $1,200
In a few sentences, answer the following question as completely as you can. According to your textbook, “an investment should be accepted if the net present value is positive and rejected if it is negative” (p. 239). What does an NPV of zero mean?If you were a financial decision maker facing a project with NPV of zero (or close to zero) what would you do? Can you think of any other factors that might influence your decision?
This is a situation where you have mutually exclusive capital budgets to choose from. You look at an NPV profile knowing that the cost of capital is smaller than the cross-over point. In this area of the graph,Group of answer choices A.You should never select any capital project when the cost of capital (WACC) is less than the cross over point. B.In this situation you should not use the IRR nor the NPV to choose between capital budgeting projects. C.if you choose based on which project has the highest IRR, you will make an incorrect decision. Instead you should choose the project with the highest NPV. D.if you choose based on which project has the highest NPV, you will make an incorrect decision. You should choose the project with the highest IRR.
What are the internal rates of return (IRR) on the three projects? Does the IRR rule in this case give the same decision as NPV? How do you know? If the opportunity cost of capital is 11%, what is the profitability index for each project? Please analyze if, in general, decisions based on profitability index are consistent with decisions based on NPV. What is the most generally accepted measure to choose between the projects? Please justify your answer.