The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of proj

Question

The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A, B, and C as follows:

  

  

  

Compute the profitability index for each of the three projects. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

  

  

Compute the NPV for each of the three projects. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

  

  

Suppose these three projects are independent. Which project(s) should Amaro accept based on the profitability index rule?

  

Suppose these three projects are mutually exclusive. Which project(s) should Amaro accept based on the profitability index rule?

  

Suppose Amaro’s budget for these projects is $530,000. The projects are not divisible. Which project(s) should Amaro accept?

The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A, B, and C as follows:

Explanation / Answer

On the basis of NPV as well as profitability index project B and C should be accepted

Particulars Year PVF @ 11% Cash Flows A Cash Flows B Cash Flows C PV A PV B PV C Cash Outflows 0                     1.00 -190000 -340000 -190000 (190,000.00) (340,000.00) (340,000.00) Cash Inflows 1                     0.90 118000 216000 128000     106,306.31     194,594.59     194,594.59 Cash Inflows 2                     0.81 118000 216000 98000        95,771.45     175,310.45     175,310.45 NPV        12,077.75        29,905.04        29,905.04 Profitability Index                  1.06                  1.09                  1.09

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