Quiz 3 w answers

Quiz 3 w answers - 25 $ 3 = ×-× Project A has the higher...

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Quiz 3 BUSI 105 Spring 2008 Name_____________________________________ Consider the two following projects: Project C0 C1 C2 C3 A -$36 $20 $20 $20 B -50 25 25 25 a. Which project has the higher NPV if the discount rate is 10 percent? NPV A  = –$36 + [$20  ×  annuity factor(10%, 3 periods)]  = –$36 + 74 . 13 $ ) 10 . 1 ( 10 . 0 1 10 . 0 1 20 $ 3 = × - × NPV B  = –$50 + [$25  ×  annuity factor(10%, 3 periods)]  = –$50 + 17 . 12 $ ) 10 . 1 ( 10 . 0 1 10 . 0 1
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Unformatted text preview: 25 $ 3 = ×-× Project A has the higher NPV if the discount rate is 10% . b. Which has the higher Profitablity Index? Project A has the higher profitability index, as shown in the table below: Project PV of Cash flow Investment NPV Profitability Index A $49.74 $36 $13.74 0.38 B $62.17 $50 $12.17 0.24...
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