Amaro accept based on the profitability index rule

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Reference no: EM131878367

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

Year Project A Project B Project C 0 −$ 165,000 −$ 315,000 −$ 165,000 1 113,000 206,000 123,000 2 113,000 206,000 93,000

Suppose the relevant discount rate is 11 percent per year.

a. 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).)

Profitability index

Project A

Project B

Project C

b. 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).)

NPV Project A $

Project B $

Project C $

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

Project A

Project B

Project C

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

Project A

Project B

Project C

e. Suppose Amaro’s budget for these projects is $480,000. The projects are not divisible. Which project(s) should Amaro accept?

Project A

Project B

Project C

Reference no: EM131878367

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