General Co. is considering investing $3,000,000 in a project that is expected to generate the following net cash flows:
Year 1 = $275,000
Year 2 = 400,000
Year 3 = 475,000
Year 4 = 475,000
General Co. uses WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, what is the project's profitability index (PI)?
General Co. decision to accept or reject the project is indepedent of its decision on other projects. Based on the project's PI, should the firm accept or reject?
By comparison, what is the NPV of this project? On the basis of evaluation criterion, should General Co. invest/not invest because the project will/will not increase the firm's value?
A project with a negative NPV will have PI that is equal to 1/greater than 1/less than 1 ; when it has a PI of 1.0, it will have a NPV greater than $0/less than $0/equal to $0 ?
Thank you!
General Co. is considering investing $3,000,000 in a project that is expected to generate the following net cash flows:
Year 1 = $275,000
Year 2 = 400,000
Year 3 = 475,000
Year 4 = 475,000
General Co. uses WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, what is the project's profitability index (PI)?
General Co. decision to accept or reject the project is indepedent of its decision on other projects. Based on the project's PI, should the firm accept or reject?
By comparison, what is the NPV of this project? On the basis of evaluation criterion, should General Co. invest/not invest because the project will/will not increase the firm's value?
A project with a negative NPV will have PI that is equal to 1/greater than 1/less than 1 ; when it has a PI of 1.0, it will have a NPV greater than $0/less than $0/equal to $0 ?
Thank you!
Related questions
Axis Chemical Co. is analyzing a project that requires an initial investment of $2,225,000. The projectâs expected cash flows are:
| Year | Cash flow |
| Year 1 | $375,000 |
| Year 2 | -150,000 |
| Year 3 | 475,000 |
| Year 4 | 425,000 |
1. Axis Chemical Co.âs WACC is 7%, and the project has the same risk as the firmâs average project. Calculate this projectâs modified internal rate of return (MIRR):
a. 21.81%
b. 24.53%
c. -12.32%
d. 29.99%
2. If Axis Chemical Co.âs managers select projects based on the MIRR criterion, they should ___________this independent project.
a. reject
b. accept
3. Which oft the following statements about the relationship between IRR and the MIRR is correct?
a. A typical firmâs IRR will be greater than its MIRR.
b. A typical firmâs IRR will be equal to its MIRR.
c. A typical firmâs IRR will be less than its MIRR.
show how you got your answer. thanks
Consider a project that has regular cash flows (i.e. no negative cash flows after Time 0). Based on accept/reject rules, the project should be accepted if the:
| Profitability Index is less than or equal to 1. |
| IRR exceeds the required return for the project. |
| Discounted payback is less than the payback period. |
| Payback period is less than the life of the project. |
