Hanmi Group, a consumer electronics conglomerate, is reviewing its annual budget

Question

Hanmi Group, a consumer electronics conglomerate, is reviewing its annual budget in wireless technology. It is considering investments in three different technologies to develop wireless communication devices. Consider the following cash flows of the three independent projects for Hanmi. Assume the discount rate for Hanmi is 8 percent. Further, Hanmi Group has only $16 million to invest in new projects this year.

Hanmi Group, a consumer electronics conglomerate, is reviewing its annual budget in wireless technology. It is considering investments in three different technologies to develop wireless communication devices. Consider the following cash flows of the three independent projects for Hanmi. Assume the discount rate for Hanmi is 8 percent. Further, Hanmi Group has only $16 million to invest in new projects this year.

Explanation / Answer

FIN Q 14523

NPV = PV of all cash outflows and inflows

Accordingly, NPV of the projects are as follows:

Profitability Index = PV of all cash inflows / PV of all cash outflows

So PI for the 3 projects:

CDMA

G4

WIFI

PV of Cash Inflows

8.89

40.75

49.60

PV of Cash Outflows

4

12

16

PI

2.22

3.40

3.10

CDMA

G4

WIFI

PV of Cash Inflows

8.89

40.75

49.60

PV of Cash Outflows

4

12

16

PI

2.22

3.40

3.10

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