The treasurer of Tropical Fruits, Inc., has projected the cash flows of Projects A, B, and C

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

Year Project A Project B Project C -$300,000 -$525,000 -$300,000 1 203,000 360,000 210,000 2 203,000 360,000 185,000


Suppose the relevant discount rate is 12 percent per year.

a. Compute the profitability index for each of the three projects.

b. Compute the NPV for each of the three projects.

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

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

e. Suppose the budget for these projects is $825,000. The projects are not divisible. Which project(s) should be accepted?

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Corporate Finance Core Principles And Applications

ISBN: 9781260571127

6th Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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