34. Irwin Industries is currently considering a project that will produce cash i
ID: 2619686 • Letter: 3
Question
34. Irwin Industries is currently considering a project that will produce cash inflows of $87,000 a year for two years followed by $76,000 a year for three more years. The cost of the project is $244,000. What is the profitability index if the discount rate is 11.2 percent?
33.
yes; because the AAR is greater than 20 percent
yes; because the AAR less than 20 percent
no; because the AAR is greater than 20 percent
no; because the AAR is 20 percent
yes; because the AAR is 20 percent
yes; because the AAR is greater than 20 percent
yes; because the AAR less than 20 percent
no; because the AAR is greater than 20 percent
no; because the AAR is 20 percent
yes; because the AAR is 20 percent
Explanation / Answer
34)
Profitability index = present value of cash inflows / initial investment
Present value of cash inflows = 87000 / ( 1 + 0.112)1 + 87000 / ( 1 + 0.112)2 + 76,000 / ( 1 + 0.112)3 + 76,000 / ( 1 + 0.112)4 + 76,000 / ( 1 + 0.112)5
Present value of cash inflows = 298,268.5523
Profitability index = 298,268.5523 / 244,000
Profitability index = 1.22
33)
Data for net income in the question is missing. Please post the questing again with the missing data.
A project is always accepted when AAr is greater than cost of capital.
Therefore, yes; because the AAR is greater than 20 percent
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