Q4. A project costing $6,200 initially should produce cash inflows of $2,860 per year at the end of Year 2, Year 3, and Year 4. The project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. a) What is the profitability index of this project if the required rate of return is 11.3 percent? b) There is a second project which has a credible profitability index of 1.80. If your financial condition only allows you to invest one of the two projects, which would you go based on their profitability indices?

Q4. A project costing $6,200 initially should produce cash inflows of $2,860 per year at the end of Year 2, Year 3, and Year 4. The project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. a) What is the profitability index of this project if the required rate of return is 11.3 percent? b) There is a second project which has a credible profitability index of 1.80. If your financial condition only allows you to invest one of the two projects, which would you go based on their profitability indices?

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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