The treasurer of Holmes & Holmes Co. has projected the cash flows of Project A, B,...

 

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The treasurer of Holmes & Holmes Co. has projected the cash flows of Project A, B, and C as follows: Year Project A Project B Project C 0 -$405,000-$810,000-$405,000 1 297,000 540,000 324,000 2 297,000 540,000 243,000 Suppose the relevant discount rate is 12% per year. i. Compute the profitability index for each of the three projects. ii. Compute the Net Present Value (NPV) for the three projects. iii. Suppose these three projects are independent. Which project(s) should Holmes & Holmes accept based on the profitability index rule? iv. Suppose these three projects are mutually exclusive. Which project(s) should Holmes & Holmes accept based on the profitability index rule? Hint: Since the projects are mutually exclusive, choose the project with the highest PI, while taking into account the scales of the project. Consider also the incremental cash flows of the project when the scales of the projects are different. v. Suppose the company's budget for these projects is $810,000. The projects are not divisible. Which project(s) should Holmes & Holmes accept? The treasurer of Holmes & Holmes Co. has projected the cash flows of Project A, B, and C as follows: Year Project A Project B Project C 0 -$405,000-$810,000-$405,000 1 297,000 540,000 324,000 2 297,000 540,000 243,000 Suppose the relevant discount rate is 12% per year. i. Compute the profitability index for each of the three projects. ii. Compute the Net Present Value (NPV) for the three projects. iii. Suppose these three projects are independent. Which project(s) should Holmes & Holmes accept based on the profitability index rule? iv. Suppose these three projects are mutually exclusive. Which project(s) should Holmes & Holmes accept based on the profitability index rule? Hint: Since the projects are mutually exclusive, choose the project with the highest PI, while taking into account the scales of the project. Consider also the incremental cash flows of the project when the scales of the projects are different. v. Suppose the company's budget for these projects is $810,000. The projects are not divisible. Which project(s) should Holmes & Holmes accept?

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ii Compute the profitability index for each of the three projects The profitability index PI is a me... View the full answer