Can someone please show me ALL of the steps to solve these? Thanks so much! What
ID: 2631953 • Letter: C
Question
Can someone please show me ALL of the steps to solve these? Thanks so much!
What is the profitability index for the cash flows if the relevant discount rate is 10 percent? What is the profitability index for the cash flows if the relevant discount rate is 19 percent? What is the profitability index for the cash flows if the relevant discount rate is 26 percent? A firm evaluates all of its projects by applying the IRR rule. Determine the IRR for the above project. If the required return is 21 percent, should the firm accept the above project? What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent? What is the profitability index for the set of cash flows if the relevant discount rate is 15 percent? What is the profitability index for the set of cash flows if the relevant discount rate is 22 percent? A project that provides annual cash flows of $17,500for eight years costs $81,000today. What is the NPV for the project if the required return is 7 percent? At a required return of 7 percent, should the firm accept this project? (Round your answer to 2 decimal places, (e.g., 32.16)) What is the NPV for the project if the required return is 19 percent? At a required return of 19 percent, should the firm accept this project? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places, (e.g., 32.16)) At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (e.g., 32.16))Explanation / Answer
1. NPV at 10%
Profitability Index = 1+ (NPV/Initial investment)
=1+(-2261.53/9100)
=0.75
b. NPV at 19%
Profitability Index = 1+(-3184.52/9100)
=0.65
c. NPV at 26%
PI = 1+(-3761.84/9100)
=0.59
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2.
Since the IRR is greater than the required rate of return, we must go ahead with the project
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3a. NPV at 10%
PI = 1+(4587.60/18900)
=1.24
b. NPV at 15%
PI = 1+(2815.79/18900)
=1.15
c. NPV at 22%
PI = 1+(700.80/18900)
=1.04
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4. NPV at 7%
Since, the NPV is positive, the firm must accept the project
b. NPV at 19%
NPV at 19% is -11798.60
Since, the NPV is negative, the firm should not accept the project
c. IRR of the project:
Hence, at 14.07% the firm should be indifferent at accepting the project
Year Cash Flow Present Value 0 -9100 -9100 1 3200 2909.09 2 2300 1900.83 3 2700 2028.55 NPV -2261.53