Question

X P9-20 (similar to) Question Help :, use the Pl to determine which projects the company Profitability index. Given the discount rate and the future cash flow of each project listed in the following table, should accept What is the PI of project A? (Round to two decimal places.) 0 X - Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) Cash Flow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Project A - $2,000,000 $200,000 $400,000 $600,000 $800,000 $1,000,000 Project B - $2,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 13% Discount rate 7% Print Done

Answer 1

COON - V W X Y Z AA Year Project Project B 0 $(2,000,000.00) $ (2,400,000.00) 1 $ 200,000.00 $ 1,200,000.00 2 $ 400,000.00 $ 1.000.000.00 3 $ 600,000.00 $ 800,000.00 4 $ 800,000.00 $ 600,000.00 5 $ 1,000,000.00 $ 400,000.00 PV of Cash Inflow $2,349,372.45 $2,984,628.93 Initial Investment $ 2,000,000.00 $ 2,400,000.00 Profitability Index 1.17 1.24 PV of Cash Inflow / Initial Investment

CU NOCO OWN V W Year Project A Project B -2000000 |-2400000 1=U2+1 200000 1200000 =U3+1 400000 1000000 =U4+1 600000 800000 =U5+1 800000 600000 =U6+1 1000000 400000 PV of Cash Inflow =NPV(0.07,V3:17) ENPV(0.13,W3:W7) Initial Investment =-V2 =-W2 Profitability Index =V8/V9 =W8/W9 PV of Cash Inflow / Initial Investment

PI of Project A = 1.17

PI of Project B = 1.24

Select project B as it has higher Profitability I ndex

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