(C) Project S, Question 69. If Webley uses the profitability index to decide, it would. Tulsian’s Financial Management For CA Intermediate (New ... Found inside – Page 1541 1 Continuing in this way you will find that the discount rate is between 16 percent and 17 percent . ... It is not surprising that the internal rate of return for Project C would be greater than that for Project B since the net ... (D) â¹ 455.37 lakh. The PVAF 2.6667 is found for 4 years in the 18% column in the PVAF table. Financial Management: Theory & Practice - Page 441 Found inside – Page 239If it is greater , then the present value of cash inflows divided by the present value of the outflows , which is the profitability index , will be greater than one . On the other hand , if the net present value is negative , then the ... There are some pitfalls in using the internal rate of return rule. Answer: Thus, the profitability index is $134.20 / $100, or 1.342. equal to 9%. (C) â¹ 33,603, Question 89. Found inside – Page 344If the profitability index is more than one, accept the proposal. The higher the index, the more profitable the ... Even advanced capital budgeting techniques such as sensitivity analysis* cannot be useful if the data is erroneous. 2. Question 96. Profitability Index - Learn How to Calculate the ... Question 95. (A) Certainty Equivalent Approach Answer: IRR = 12 + \(\frac{9,921}{9,921+1,605}\) à 5 Answer: Bhaskar Ltd. estimated that a proposed projectâs 8-year net cash benefit will be â¹ 4,000 per year for years 1 to 8, with an additional terminal benefit of â¹ 8,000 at the end of the eighth year. What Is Profitability Index? (A) â¹ 436.26 lakh Found inside – Page 16Until recent years , many firms have failed to make a careful scientific analysis ; some still do not do so . ... The higher the rate of capital cost the lower the profitability index ; if it is less than 1 the cost of the investment ... Given this, which one of the following must be true? Vacuum is a place where no particles exist . (D) 8.97 How much cash flow will be generated by the project each year? (D) 0.45 The initial investment in the project was â¹ 1,50,000. It is not calculated as the profitability index - 1. Answer: Lease Rental = \(\frac{\text { Cost of asset }}{\text { Annuity factor of } 10 \% \text { for } 5 \text { years }}=\frac{7,61,790}{3.79}\) = 2,01,000 UGC NET Management (17) Practice Question Bank Include 4000 ... Profitability Index The profitability index is the ratio of the sum of present values of the project divided by the initial cost of the investment. d. will never be greater than 1. 45. X Ltd. is considering to start a new project for which it has gathered following datar, Calculate the expected cash flow. a. E. The profitability index for this project would be * 2 points a. c. The IRR is greater than cost of capital. 2.9137x = 1,50,000 the project returns 85 cents in present value for each current dollar invested. EBOOK: Corporate Finance, 4e - Page 164 4,500x- 12,000 = 0 Seasonal index - BrainMass Hint: Hint: Select the odd one. If the profitability index of a project is 0.75, it means: a) The NPV of the project is greater than zero b) The project's cost is less than the present value of its cash flows c) The NPV of the project is greater than 1 d) The project returns 75 cents in present value for each dollar invested in it. Profitability Index Formula. The answer B. the discount rate is less than the internal rate of return. Answer: Investment Decision Criteria Sample Assignment | Sample ... 1. Answer: Online Food License FSSAI Registration Process, Fees, Documents Required, Types | How to Apply FSSAI Registration Online? Payback period = 2 years + \(\frac{2,00,000-1,80,000}{40,000}\) à 12 (A) â¹ 37,900 Managerial Economics and Financial Analysis | JNTU - Page 344 (B) 4.85%, Question 105. What is the payback period for this investment? A) According to the profitability index (PI) decision criterion when the PI is greater than 1, the cost exceed the benefits. Hint: Found inside – Page 81(4) Cannot be determined from this information. Answer: (2) (2) If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than 8%, will be less than 0. (3) If the PI of a project equals 0, then the project's initial cash ... Production and Operations Management, 6e Payback period = 3 years + \(\frac{80,000-70,000}{20,000}\) à 12 If it is above 1, the venture should be profitable. Found inside – Page 24Index. The profitability index (PI) is closely related to NPV (see Eq. 9- 3). Projects with an index greater than one ... Hopefully, a project engineer will never have to deal with a worst case situation, but the prudent one will have ... Internal . And so, the profitability index should be greater than 1. The cost of capital is 9%. If your calculation is less than 1, then the project has more risk associated with it. (B) â¹ 40,000 ARR of Machine B = \(\frac{2,80,000}{17,50,000}\) à 100 = 16% 1.09. (C) 90,000, Your email address will not be published. The profitability index is calculated by dividing the present value of future cash flows that will be generated by the project by the initial cost of the project. Loan Amount = \(\frac{\text { Investment cost }}{\text { Annuity factor of } 20 \% \text { for } 5 \text { years }}=\frac{40,00,000}{2.991}\) = 13,37,345 The tax rate is 40%. = 3 years & 6 months The tax rate is 30%. Alternatively, it can borrow at 20%. If obsolete inventory is written off, this would A. increase net working capital. Expected NPV = 45 (C) The firm should adopt mode A + G only. A company can obtain an asset on lease by paying 5 equal lease rentals annually. The IRR is the same as cost of capital. 4,500x = 12,000 Question 11. (C) â¹ 379.36 lakh (C) 8.54% (A) â¹ 88,265 (D) 8.00%, Question 103. Cost of the plant: 70,000 Question 8 options: 1) The net present value is greater than 1.0. (A) It has a positive NPV of â¹ 2,522 (B) 2 years and 6 months. 12. Calculate the sensitivity of the project cost in percentage given that: Cost of the plant: 70,000 = 12 + \(\frac{2,252}{4,150}\) à 5 (D) â¹ 455.37 lakh 11) When the Profitability Index (PI) is greater than 1, the benefits exceed the costs. (D) Cannot be determined with this information. (C) The IRR is greater than 14%, but less than 18%. Y Ltd. is considering a project which requires an initial investment of â¹ 6,75,000. CS Executive Jurisprudence, Interpretation & General Laws, CS Executive Economic Business and Commercial Laws, CS Executive Setting Up of Business Entities and Closure, CS Executive Securities Laws and Capital Markets, CS Executive Corporate and Management Accounting MCQ, CS Executive Financial and Strategic Management MCQ. (D) â¹ 3,32,000 (B) â¹ 1,45,000 Since the net present value is the monetary gain (loss) of the project's cumulative net cash flows, the net present value of a project with a P.I. "These guys are . In the terminal year, the asset will be sold for â¹ 40,000. Nitro Pro 8 (8. Found inside – Page 258in CF NPV = I ( 13 ) 1 = 1 ( 1 + k ) $ 17,000 ( 1 + .11 ) ' + $ 21,000 ( 1 + .11 ) + $ 28,000 + ( 1 + .11 ) – $ 70,000 Since the net present value of $ 11,161.62 is greater than zero , the firm should undertake the investment project . (B) 80,000 The accept-reject decision is made as follows: If PI is greater than 1, accept the investment. b. is calculated by dividing total cash flows by the initial investment. The formula for the PI is as follows: or . Each machine requires an investment of 134,375 and has a useful life of 12 years. 1. the payback period is less than one year. The leasing company desires a return of 10% on the gross value of the asset. (A) â¹ 1,95,000 Calculate the sensitivity of the âcost of capital in percentage given that: Profitability Index Advantages. (D) 6.78% A company's current ratio and acid-test ratios are both greater than 1. D. decrease the acid-test ratio. (A) 29%, Question 102. Answer: <> 90,000 Calculate the lease rental payable by the company each year. The project must have a profitability index that is equal to or greater than 1.0. (D) â¹ 7,216 Question 83. The risk-free rate is 7%. A. A company is faced with the decision to purchase or acquire on lease a machine. D. A positive profitability index indicates that the project's profitability is higher than its cost of capital. standard deviation is less. Found inside – Page 461[In under the both figure criteria, project project 1 has 1 a higher is preferred.] NPDV than project II. ... Profitability Index One weakness of the PDV method is ignoring the quantum of investment expenditure made to earn the net PDV. Year 3 = â¹ 7,000 Raja & Co. desires to take a project whose cost is t 12,000 and useful life is 4 years. (B) Project P PVAF(14%4): 2.9137 (D) â¹ 37,501 4/14 à 100). Found insideIt can mathematically be expressed as follows: The project is accepted if the profitability index is greater than unity and ... Project B cannot be accepted and vice versa) for the same cost of capital any of the three criteria (1) NPV, ... (C) Its IRR is between 14% to 15% which is more than WACC of the company. The leasing company desires a return of 10% on the gross value of the asset. A company has 15,00,000 available for investment and is considering the following four divisible, but not repeatable, projects to invest in: The outlay would be â¹ 12,50,0 & the total NPV would be â¹ 2,00,000 A company can obtain an asset on lease by paying 5 equal lease rentals annually. Hint: Chart: CFI eCommerce Financial Modeling Course . (D) 24.64% 110 0 obj x à 3.605 1,80,250 Usually, an investment project should be accepted if PI is greater than 1. One advantage of using internal funding to support investment projects is that the firm experiences no economic cost of capital for internal funding. D. Projects with conventional cash flows have multiple internal rates of return. If an investment project has a profitability index of 1.15, the. (C) â¹ 1,31,570, Question 79. Whenever the NPV > 0, the PI will be greater than 1.0. %���� 39. Found inside – Page 326( A profitability index greater than 1.00 implies that a project's present value is greater than its initial cash ... investment in one of two computer systems , acceptance of one system will rule out the acceptance of the other . Expected annual incremental CFAT = 4,20,000 Transcribed image text: ded All of the following are useful for understanding Profitability Index, except: Multiple Choice A profitability index greater than 1 equals a positive NPV A profitability index less than 1 equals a negative NPV. Year 1 = â¹ 3,000 Just A, because it offers the highest rate of return and is the only investment that has a rate of return higher than 15% b. (C) â¹ 52,500 required return is less than the internal rate of return. What is the NPV of this project? C. decrease the current ratio. (C) 22.22% (D) â¹ 7,371 payable in advance. Hint: d. unacceptable for investment purposes. (C) â¹ 37,424 Between zero and one. Its NPV is not dependent on whether A or B is adopted and the NPV of A or B does not depend on whether C is adopted. B. Project's internal rate of return exceeds its net present value. Let the discount factor be ‘xâ. Question 77. It is a relative measure of the value (present value) of a project compared to its cost. Hint: Loan Amount = \(\frac{\text { Investment cost }}{\text { Annuity factor of } 20 \% \text { for } 7 \text { years }}=\frac{5,50,000}{3.605}\) = 1,52,566 x = 2.6667 (D) â¹ 3,00,340 Margin for CFAT = \(\frac{4,769}{56,250}\) à 100 = 8.48% (C) â¹ 67,800 Found inside – Page 45Benefit cost ratio (profitability index) method When two projects have different investment outlays, they cannot be compared by NPV ... Accept the project if its PI is more than one and reject if the project if its PI is less than one. 12. (C) Simulation (B) 9.30, Question 93. (C) 3 years & 2.32 months T Ltd. is considering an investment in one of two mutually exclusive projects. Profitability Index 1 Example Consider now a second project whose initial investment at the start of year one is 140,000 and which returns a cash flow of 140,000 in year 5. (A) The IRR is less than 10%.
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