Broxton Group, a consumer electronics conglomerate, is reviewing its annual budg
ID: 2789870 • Letter: B
Question
Broxton 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. Assume the discount rate is 11 percent. Further, the company has only $20 million to invest in new projects this year.
Cash Flows (in $ millions)
a. Calculate the profitability index for each investment. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b. Calculate the NPV for each investment. (Enter your answers in dollars, not millions of dollars. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 1,234,567.89.)
Explanation / Answer
Statement showing Cash flows L6 G5 WiFi Particulars Time PVf 11% Amount PV Cash Outflows - 1.00 (7.00) (7.00) (13.00) (13.00) (20.00) (20.00) PV of Cash outflows = PVCO (7.00) (13.00) (20.00) Cash inflows 1.00 0.9009 10.00 9.01 11.00 9.91 18.00 16.22 Cash inflows 2.00 0.8116 6.50 5.28 26.00 21.10 32.00 25.97 Cash inflows 3.00 0.7312 4.50 3.29 20.00 14.62 20.00 14.62 PV of Cash Inflows =PVCI 17.57 45.64 56.81 PI = PVCI/PVCO 2.51 3.51 2.84 NPV= PVCI - PVCO 10.57 32.64 36.81
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