Dahlia Manufacturing has the following two possible projects. The required retur
ID: 2709650 • Letter: D
Question
Dahlia Manufacturing has the following two possible projects. The required return is 11 percent. Year Project Y Project Z 0 –$28,800 –$53,000 1 14,800 13,000 2 13,200 39,000 3 15,600 11,000 4 11,200 37,000 Required: (a) What is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).) Profitability index Project Y Project Z (b) What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) NPV Project Y $ Project Z $ (c) Which, if either, of the projects should the company accept?
Explanation / Answer
(A) profitability Index = PV of Inflow / Initial Outflow
Profitabaility index Of project Y= 3436.093/28800=0.119
Profitabaility index Of project Z=17419.068/53000=0.329
C.Project Z is accepted by the company,why because the NPV is high
Cash flow Y $ cash flow Z $ rate@11% PV of project Y PV of Project Z -28800 -53000 1 -28800 -53000 14800 13000 0.900901 13333.33333 11711.71171 13200 39000 0.811622 10713.41612 31653.2749 11200 37000 0.731191 8189.343471 27054.08111 B NPV 3436.092923 17419.06772Related Questions
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