Profitability index questions and answers. its net present value is positive.
Profitability index questions and answers Assume a discount rate of 5%. Assuming 10% discount rate. Profitability index Estimating the cash flow generated by $1 invested in investment The profitabitity index (PI) is a capltal budgeting tool that provides another way to compare a project's benefits and costs. 00 22,000 Business; Finance; Finance questions and answers; Profitability index. 693 Consider the following two mutually exclusive projects: Year o-NM Cash Flow (A) $345,000 50,000 70,000 70,000 445,000 Cash Flow (B) $48,500 24,500 22,500 Business; Finance; Finance questions and answers; 4. Oct 3, 2023 · In short, the profitability index (PI) measures the attractiveness of a potential project or investment to guide decision-making. Question: What is the profitability index of the following investment if the required return 9% Year 0 1 2 3 Cash Flow -200 145 70 80 1) 1. May 5, 2024 · The profitability index is a variation on the net present value concept. The profitability index is calculated by subtracting the net investment from che present value of the cash flows. Jan 30, 2024 · Required: Using the present value index method, appraise the profitability of the proposed investment, assuming a 10% rate of discount. See Answer See Answer See Answer done loading Question: What is the profitability index for a project costing $42,400 and returning $19,250 annually for 4 years at an opportunity cost of capital of 17% ? \begin{tabular}{l} 0. Access the answers to hundreds of Profitability index questions that are explained in a way that's easy for you to understand. Round your answer to 4 decimal places. 10. Can't What is the Profitability Index? The Profitability Index (PI) measures the ratio between the present value of future cash flows and the initial investment. Free Profitability Index Multiple Choice Questions (MCQ Quiz) with Answers: Profitability Index MCQ PDF Book, Profitability Index App Download to study online MBA finance courses. 4. Question: Calculate the net present value and profitability index of each machine. 161. Finance questions and answers; What is the profitability index of a project that costs $10,000 and provides cash flows of $3,000 in years 1 and 2 and $5,000 in years 3 and 4? The discount rate is 9%. 00 18,000. The first step is to calculate the present value and profitability index. 00) 12,000. You are given the opportunity to invest in one of two projects. Profitability Index, as the name suggests, indicates how much profit a business can expect from investing in a project. 1, and. The final decision should be based on the NPV since it does not have the ranking Question: e-1 What is the profitability index for each project? (Do not round intermed calculations and round your answers to 3 decimal places, e. 520 \end{tabular} Finance questions and answers; Book rate of return and profitability index are the two most commonly used investment criteria. Business; Finance; Finance questions and answers; 8. Get help with your Profitability index homework. 125 and profitability index to 2 decimal places, e. Master your responses to Profitability related interview questions with our example questions and answers. What is the NPV of each project if the discount rate is 12%? (Do not round intermediate calculations. 92 and requires an initial investment of $719,400. 99 Question 33 What is the profitability index of a project that costs 00 in years 1 and 2 and $5,000 in years 3 and 4? TH x. Finance questions and answers; The profitability index will be bigger than one for a (negative/positive) NPV investment. Calculate the NPV and Profitability Index for each of the following projects, assuming the cost of capital is 7%. 3. 85 for a project means that: the present value of benefits is 85% greater than the project's costs. A profitability index of . If the required return is 10 percent, what is the profitability index for both projects? See Answer See Answer See Answer done loading Question: preference decisions, the profitability Index and internal rate of return methods will rank projects in the same order of preference. * True False 3 pts Question 12 The required return, the cost of capital, and the discount rate are actually three distinctively different concepts. Note: Round your answers to 2 decimal Answer to The profitability index (PI) is most closely. the payback period is less than one year. According to the profitability index rule, which project(s) should you accept? Finance questions and answers; 3 Profitability Index. b. 22. ) Project A Project B 1. Round your answers to 2 decimal places. The company requires a 6% return from its investments. 0. Reg 1 Reg 2 Reg 3 Reg 4 Req 5A Reg 58 Calculate the profitability index for each product. its net present value is negative. Use the following set of cash flows to calculate the Profitability Index at different required rates of return Question: 3. Calculate the Profitability Index and Payback. the project's NPV is greater than zero. What is the PI of project U ? See Answer See Answer See Answer done loading Question: A project has profitability index of 1. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Can't See full list on corporatefinanceinstitute. (Do not round intermediate calculations. Answer to The profitability index (PI) of a project is 1. The only difference is that it results in a ratio, rather than a specific number of dollars of net present value. True or False True False Finance questions and answers; Problems with Profitability Index [LO1, 7] The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) Cashflow I Cashflow II 0 −$82,000 −$21,700 1 37,600 11,200 2 37,600 11,200 3 37,600 11,200 a. are less dependable than Finance questions and answers; Profitability index. 14. Finance questions and answers; 11. Answer to 3. Question: Project CO C1 A -$2,100 +$2,000 +$1,200 B -$2,100 +$1,440 +$1,728 C2 Use the profitability index rule to determine which project you should accept. 50. (5 Points) Initial Investment Year 0 Year 1 2 Finance questions and answers; What is the profitability index of a project that costs $10,000 and provides cash flows of $3,500 in years 1 and 2 and $5,500 in years 3 and 4 ? The discount rate is 8%. 09 D. Finance questions and answers; Calculating Profitability Index What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent? Year Cash Flow -$29,500 16,900 13,600 8,300 Answer to The profitability index: _____Question 5. Calculate the Profitability Index and Payback Period for the following project. $661,848$1,381,248$1,576,536$845,464$2,100,648 Finance questions and answers (Payback period, net present value, profitability index, and internal rate of return calculations) You are considering a project with an initial cash outlay of $80,000 and expected cash flows of $23,200 at the end of each year for six years. True False The project with such a profitability index greater than one has a present value of cash inflows greater than the project's cost, as a consequence, the project is financially viable, a profitability index of less than one, and on the other hand, indicates that the present value of a project's cash inflows is much less than the project's cost, indicating that such project was unprofitable. It is computed as a ratio of the discounted value of the net cash flows expected to be generated by a project over its life (the project’s expected benefits) to its net cost (NINV). See Answer See Answer See Answer done loading Question: Consider the following two projects: The profitability index for project B is closest to: A. Finance questions and answers; Problem 8-25 Profitability Index versus NPV (LO3) Consider projects A and B with the following cash flows: C1 C2 C3 A B Co -$37 - 62 +$22 + 31 +$21 + 31 +$ 21 a-1. Finance questions and answers; How should a profitability index of zero be interpreted? The project's cash flows subsequent to the initial cash flow have a present value of zero. The project has an internal rate of return equal to the discount rate. ) Product B Product A 0. 00 10,000. Your solution’s ready to go! Our expert help has broken down your problem into an easy-to-learn solution you can count on. Get help with your Profitability index homework. are less dependable than the payback method in ranking investment projects. True False The IRR rules states that you invest if the project IRR is greater than the opportunity cost of capital. Cash flow Project A Project B Year 0 -$2,100,000 -$2,600,000 Year 1 $650,000 $1,,300,000 Year Finance questions and answers; Calculate the profitability index for a project that costs 100,000 and will result in the following cash flows over a 5-year period: 5,000, 10,000, 15,000, 20,000, 25,000. Question: Problem 8: Calculating Profitability Index. Business; Finance; Finance questions and answers; The profitability index: _____Question 5 options:A) rule often results in decisions that conflict with the decisions based on the net present value rule. Note: Do not round intermediate calculations. Calculate the profitability index for A and B assuming a 22% opportunity cost of capital. Assume a 9% discount rate. its internal rate of return is greater than the discount rate. 245 \\ \hline 0. 427 B: PI = 1. The profitability index for each project is: A: PI = 1. Consider the following projects: (L08-3) C1 Project A B Со -$2,100 -2,100 +$2,000 +1,440 C2 +$1,200 +1,728 a. ) What is the profitability index? 1. will sometimes result in different preference rankings for investment projects are less dependable than the payback method in ranking investment projects are less Answer to The profitability index (PI) is a capital budgeting. its net present value is zero. will always result in the same preference ranking for investment projects B. Justify your answer Show transcribed image text Accounting questions and answers; QUESTION 25 If a project's profitability index is less than 1, then o 1. Accounting questions and answers; The profitability index and the internal rate of return: Multiple Choice will always result in the same preference ranking for investment projects. More specifically, the PI ratio compares the present value (PV) of future cash flows received from a project to the initial cash outflow (investment) to fund the project. 49 C. Round your answers to 4 decimal places. Finance questions and answers; 1. 2. 09 4) 1. Which project would you choose if only one could be chosen? If multiple projects could be undertaken, how many would you accept? 2. The index is a useful tool for ranking investment projects and showing the value created per unit of investment. It helps companies and investors measure the expected return for each dollar invested into a project or venture. Excel formula Accounting questions and answers; The project profitability index and the internal rate of return:will always result in the same preference ranking for investment projects. are less dependable Finance questions and answers; Problem 9-16 Problems with Profitability Index [LO1, 7] The Michner Corporation is trying to choose between the following two mutually exclusive design projects: a-1. 94 3) 1. These quiz questions were developed by our instructors as an assessment of your knowledge of the meaning of the terms used in the profitability index method. Profitability Index [폰 LO7] Concerning the profitability index: a. a. Apr 9, 2024 · Profitability index (PI) is the ratio of present value of a project’s expected future cash flow and initial investment needed to undertake the project. C) method is most Question: 2. will sometimes result in different preference rankings for investment projects C. Compute the profitability index for each investment project. Consider this case: Purple Whale Foodstuffs Inc. Calculate the net present value of the project. Your solution’s ready to go! Enhanced with AI, our expert help has broken down your problem into an easy-to-learn solution you can count on. In this instance, the NPV criterion implies that you should accept project A, while payback period, IRR, and the profitability index imply that you should accept project B. (Round your answers to 2 decimal places. The discount rate for this project is 10. 27 See Answer See Answer See Answer done loading Question: What is the profitability index of an investment with cash flows in years 0 thru 4 of -340, 120, 130, 153, and 166, respectively, and a discount rate of 16 percent? Accounting questions and answers; The profitability index and the internal rate of return: Multiple Choice O will sometimes result in different preference rankings for investment projects. Calculate the profitability index for each project from the following cash flows, and state whether each project should be undertaken using that investment criteria and why or why not: Original Investment Year 1 Year 2 Year 3 Year 4 Interest rate IA 1B (58,000,00) (32,000. Describe how the profitability index is calculated, and describe the information this measure provides about a sequence of cash flows. , 32. Given the discount rate and the future cash flow of each project listed in the following table, use the pl to determine which projects the company should accept PM What is the Pi of project A2 (Round to two decimal Data Table х (Click on the following icon in order to copy its contents into a spreadsheet) Cash Flow Year Nov 19, 2023 · Top 20 Profitability Interview Questions & Answers. will sometimes result in different preference rankings for investment projects. 565 \\ 0. It lets an entity establish a connection between what it spends and what it receives in the form of benefits. The final decision should be based on the NPV since it does not have the ranking Get help with your Profitability index homework. are less dependable than the payback method in ranking investment projects D. (16 Points) Initial Investment Year 0 Year 1 Finance questions and answers; 1. The final decision should be based on the NPV since it does not have the ranking. 1, and the initial investment (cost) is $10,000 . B) is useful as a decision tool when investment funds are limited and all available funds are allocated. 465 e. Rank the four projects according to preference, in terms of net present value, profitability index, and interna Complete this question by entering your answers in the tabs below. Consider the following projects: (LO8-3) Project Co C2 $2,100 +$2,000 +$1,200 2,100 1,440 1,728 ontability index for A and B assuming a 22% oppo eprofitability index rule, which project(s) should y You are a manager with an investment About This Quiz & Worksheet. The project produces a net income of zero for every year of its life. 1 percent. To calculate the profitability index, divide the present value of estimated future cash flows for a proposed project by Finance questions and answers; What is the profitability index of a project that costs $10,000 and provides cash flows of $4,000 in years 1 and 2 and $6,000 in years 3 and 4? The discount rate is 10%. (negative/positive) NPV investment and Finance questions and answers; The profitability index (PI) is a capital budgeting tool that provides another way to compare a project’s benefits and costs. ) (x) Answer is not complete. 04 < Req 2 Req 4 > Calculate the payback period for each product. Solution. 5548 IS INCORRECT. 841 1. is considering investing $400,000 in a project that is expected to generate the following net cash flows Profitability Index Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project. O are less dependable than net present value in ranking investment projects. Boost your chances of landing the job by learning how to effectively communicate your Profitability capabilities. its net present value is positive. According to the profitability index rule, which project(s) should you accept? Accounting questions and answers; Exercise 24-11 (Algo) Net present value, unequal cash flows, and profitability index LO P3 Following is Information on two alternative Investments projects being considered by Tiger Company. net present value of the project's cash outflows divided by the net present value of its inflows. Given the discount rate and the future cash flow of each project listed in the following? table, use the PI to determine which projects the company should accept. Profitability index is an Finance questions and answers; Profitability index. 15 B. Complete this question by entering your answers in the tabs below. ) a-2. Question: 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. Business; Finance; Finance questions and answers; 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. The index itself is a calculation of the potential profit of the proposed project. See Answer See Answer See Answer done loading Question: Problems with Profitability Index Symon's Sausage Corporation is trying to choose between the following two mutually exclusive design projects: \begin{tabular}{crr} \hline Year & Project I & −$49,800 \\ \hline 0 & −$65,000 & 24,900 \\ 1 & 31,500 & 24,900 \\ 2 & 31,500 & 31,500 \\ 3 Finance questions and answers; The profitability index of an investment project is the ratio of the: Multiple Choice average net income from the project to the average investment cost. Business; Finance; Finance questions and answers; The profitability index (PI) of a project is 1. 882 \\ 1. g. 9 percent. 18 2) 0. The Profitability Index MCQ with Answers PDF: An uncovered cost at the start of year is divided by full cash flow during recovery year then added in prior years to full recovery for calculating; for online bachelor's Finance questions and answers; Consider the following projects: a. Round your answer to "4 DECIMAL PLACES". The company requires a 12% return from its Investments. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment. 00 16,000. Calculation of the Profitability Index. May 31, 2021 · The profitability index rule is a decision-making exercise that helps evaluate whether to proceed with a project. Given the discount rate and the future cash flow of each project listed in the following table, use the PI to determine which projects the company should accept. Finance questions and answers (Payback period, net present value, profitability index, and internal rate of return calculations) You are considering a project with an initial cash outlay of $90,000 and expected cash flows of $25,200 at the end of each year for six years. com Jan 30, 2024 · Required: Using the present value index method, appraise the profitability of the proposed investment, assuming a 10% rate of discount. Fale Question 11 3 pts The firm's capital structure is the mix of debt and equity used to finance its asse S. 00 14,000. Accounting questions and answers; The profitability index and net present value: A. the project returns 85 cents in present value for each current dollar invested. Question: Exercise 24-10 (Algo) Net present value, unequal cash flows, and profitability index LO P3 Following is information on two alternative investment projects being considered by Tiger Company. 07 Profitability index 0. Round answer for present value to 0 decimal places, e. are less dependable than the payback method in ranking investment projects. qukava ibffnp uvee xvlyqs ggoc oodu edv evcobc fhfrusp uxtly