Question: Answer all 3 all same facts please Question 6 2.5 pts Assume the firm invests $90,000 today to get $29,000 at Year 1 (i.e. one

 Answer all 3 all same facts please Question 6 2.5 pts

Assume the firm invests $90,000 today to get $29,000 at Year 1

(i.e. one year from now), $26,000 at Year 2, $36,000 at Year

Answer all 3 all same facts please

Question 6 2.5 pts Assume the firm invests $90,000 today to get $29,000 at Year 1 (i.e. one year from now), $26,000 at Year 2, $36,000 at Year 3, $35,000 at Year 4, $27,500 at Year 5, and $16,500 at Year 6. Assuming the required rate of return for the firm's industry is 10.7%, what is this project's profitability index? 1.24 0.36 O 1.36 0.24 Question 7 2.5 pts Same facts as above, but assume that the firm expands its investment such that the revenues will go up by 20%, but the discount rate will also increase to 16.5%. What is the new profitability index? O 1.64 1.36 0.64 1.40 Question 8 2.5 pts Same facts as Questions 6 and 7: Which of the following best describes how this project's Profitability Index changes based on the increase in revenues by 20% and a corresponding increase in the discount rate to 16.5%? The Profitability Index slightly increases because there are increase in revenues, which increases the Profitability Index, and increase in discount rate that does not affect the Profitability Index. The Profitability Index slightly increases because the increase in revenues is offset by the increase in the discount rate, since a higher discount rate decreases the Net Present Value and therefore the Profitability Index. The Profitability Index slightly decreases because the increase in discount rate overshadows any benefits form the increase in revenue. The Profitability Index slightly decreases because the increase in revenues does not affect the Profitability Index, while the increase in discount rate generally decreases the Profitability Index

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!