Problem 13-14 PI (LG13-6) Compute the PI statistic for Project Q if the appropri
ID: 2795097 • Letter: P
Question
Problem 13-14 PI (LG13-6) Compute the PI statistic for Project Q if the appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project Q Time: 0 1 2 3 4 Cash flow: –$12,300 $4,000 $4,830 $2,170 $2,800
PI =
Problem 12-4 EAC Approach (LG12-8)
You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $69,000, has a 5-year life, and has an annual OCF (after-tax) of –$11,100 per year. The Keebler CookieMunster costs $95,500, has a 7-year life, and has an annual OCF (after-tax) of –$9,100 per year.
If your discount rate is 13 percent, what is each machine’s EAC? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
Please do it by type.
Explanation / Answer
1.
Profitability Index = (NPV + Initial investment) / Initial investment
NPV is calculated by discounting the cashflows
PV = C/(1+r)^n
C - Cashflow
r - Discount rate
n - years to the cashflow
PI = (-1345.13+12300)/12300 = 0.89
Rate 11.00% Year Cashflow (A) Discount rate = 1/(1+r)^(n) Present value of cashflow = A*discount rate 0 -12300.00 1.00 -12300.00 1 4000.00 0.90 3603.60 2 4830.00 0.81 3920.14 3 2170.00 0.73 1586.69 4 2800.00 0.66 1844.45 NPV -1345.13