I only have enough credit for one more question. I am aware that the rule states

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I only have enough credit for one more question. I am aware that the rule states you only need to solve a limit of 5 answers. However, in this case there are people who are willing to help answer all of them. If you are one of them, please kindly help me answer all of these questions.

Please don't just answer the first question or the five questions, otherwise I'll hit the dislike button. Thank you

7. Profitability index Aa Aa Estimating the cash flow generated by $1 invested in a project The profitability index (PI) is a capital budgeting tool that is defined as the present value of a project's cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Purple Whale Foodstuffs Inc. is considering investing $3,225,000 in a project that is expected to generate the following net cash flows: Purple Whale Foodstuffs Inc. uses a WACC of 9% whern evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): Year Cash Flow Year 1 $375,000 Year 2 $475,000 Year 3 $400,000 Year 4 $400,000 O 0.4143 O 0.4764 0.3729 O 0.3936 Purple Whale Foodstuffs Inc.'s decision to accept or reject this project is independent of its decisions on other projects. Based on the project's PI, the firm should the project. By comparison, the NPV of this project is Foodstuffs Inc. should . On the basis of this evaluation criterion, Purple Whale in the project because the project increase the firm's value. A project with a negative NPV will have a PI that is ; when it has a PI of 1.0, it will have an NPV

Explanation / Answer

1) Calculate NPV using NPV function on a calculator or excel

NPV = NPV (rate = 9%, 375000...400000) - 3225000 = -1,888,922

PI = 1 - NPV / Investment = 1 - 1888922 / 3225000 = 0.4143

2) Firm should reject the project as PI < 1

3) NPV = 1,888,922. Should not invest as it would not increase firm value.

4) If NPV < 0, PI < 1 and If PI = 1, NPV = 0

5) NPV = NPV(11%, 350000...80000) - 975000 = $247,592

6) NPV = NPV(11%, 275000, ...295000-520000,....295000) - 520000 = $295,520

7) EAA can be calculated using PMT function

EAA = PMT(rate = 13%, nper = 4, pv = 89567, fv = 0, 0) = $30,112

8) Mutually exclusive

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