Comparing projects based on the profitability index

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Reference no: EM132040935

1. Your firm has limited capital to invest and is therefore interested in comparing projects based on the profitability index (PI), as well as other measures. What is the PI of the project with the estimated cash flows below? The required rate of return is 16.2%. Round to 3 decimals.

Year 0 cash flow = -810,000

Year 1 cash flow = -200,000

Year 2 cash flow = 420,000

Year 3 cash flow = 360,000

Year 4 cash flow = 430,000

Year 5 cash flow = 400,000

2. Nano Specialist is considering an upgrade project. The estimated cash flows from the upgrade project appear below. What is the project's payback period? Note that year 0 and year 1 cash flows are negative. (Answer in years, round to 2 places)

Year 0 cash flow = -88,000

Year 1 cash flow = -42,000

Year 2 cash flow = 26,000

Year 3 cash flow = 26,000

Year 4 cash flow = 37,000

Year 5 cash flow = 26,000

Year 6 cash flow = 25,000

Year 7 cash flow = 33,000

Reference no: EM132040935

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