You are analyzing two proposed capital investments with the following cash flows: Year Project X Project Y 0 -$20,000 -$20,000 1 13,630 7,720 2 5,860 7,720 3 6,160 7,720 4 2,020 7,720 The cost of...

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Finance

You are analyzing two proposed capital investments with thefollowing cash flows:
Year
Project X Project Y
0 -$20,000 -$20,000
1 13,630 7,720
2 5,860 7,720
3 6,160 7,720
4 2,020 7,720
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project. (Do notround discount factors. Round intermediate calculations to 2decimal places, e.g. 15.25 and final answer to 4 decimal places,e.g. 1.2527.)
1) What is the PI for project X?
2) What is the PI for project Y?
3) If you have unlimited funds you should invest in..?
a) neither project
b) Project Y
c) Project X
d) Both projects
4) If they are mutually exclusive you should invest in...?
a) neither project
b) Project Y
c) Project X

Answer & Explanation Solved by verified expert

3.9 Ratings (643 Votes)

Answer 1 and 2 Calculation of PV of cash outflows Project X Project Y Cash outflow PVF 10 PVof cash flows Cash outflow PVF PVof cash flows Year 0 20000 1 20000 20000 1 20000 PV of cash outflows 20000 20000 Calculation of PV of cash inflows See Answer

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Transcribed Image Text

You are analyzing two proposed capital investments with thefollowing cash flows:YearProject XProject Y0-$20,000-$20,000113,6307,72025,8607,72036,1607,7204 2,0207,720The cost of capital for both projects is 10 percent.Calculate the profitability index (PI) for each project. (Do notround discount factors. Round intermediate calculations to 2decimal places, e.g. 15.25 and final answer to 4 decimal places,e.g. 1.2527.)1) What is the PI for project X?2) What is the PI for project Y?3) If you have unlimited funds you should invest in..?a) neither projectb) Project Yc) Project Xd) Both projects4) If they are mutually exclusive you should invest in...?a) neither projectb) Project Yc) Project X

Year	Project X	Project Y
0	-$20,000	-$20,000
1	13,630	7,720
2	5,860	7,720
3	6,160	7,720