Yokam Company is considering two alternative projects Project 1 requires an initial investment of $ 400,000 and has a net present value of cash flows of $1,100,000 Project 2 requires an initial investment of $3,500,000 and has a net present value of cash flows of $2,500,000 Compute the profitability index for each project Based on the profitability index, which project should the company prefer Explain

Question: Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $ 400,000 and has a net present value of cash flows

Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $ 400,000 and has a of cash flows of $1,100,000. Project 2 requires an initial investment of $3,500,000 and has a of cash flows of $2,500,000. Compute the profitability index for each project. Based on the profitability index, which project should the company prefer? Explain.

Step by Step Solution

★★★★★

3.34 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Project A Profitability index 1100000 400000 275 ... View full answer

Question Has Been Solved by an Expert!

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

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

267-B-C-F-C-B (1471).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

A project requires an initial investment of $60,000. It will generate an annual profit of $12,000 for eight years and have a terminal value of $10,000. Calculate the projects IRR. Should it be...

The president of the Martin Company is considering two alternative investments, X and Y. If each investment is carried out, there are four possible outcomes. The present value of net profit and...

A firm is considering a project that requires an initial investment of $180,000. The equipment will be depreciated on a straight-line basis to a zero salvage value over a period of 6 years. The...

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $369,600 with a 6-year life and no salvage value. It...

5 1.11 points eBook QS 26-18 (Algo) Profitability index LO P3 Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $560,000 and has a present value of...

Help Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $580,000 and has a present value of all its cash flows of $1,950,000. Project 2 requires an...

Award: 18.18 points QS 24-10 Profitability index LO P3 Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $480,000 and has a present value of cash...

4. 5. 7. 9. Yokam Company is considering two alternative projects Project 1 requires an initial investment of $500,000 and has a present value of cash flows of $1,950,000.0. Project 2 requires an...

Yokam Company is considering two alternative projects. Project 1 requires an Initial Investment of $540,000 and has a present value of cash flows of $2,350,000.O. Project 2 requires an initial...

Yokam Company is considering two alternative projects Project 1 requires an initial investment of $490,000 and has a present value of cash flows of $1,850,000.0 Project 2 requires an initial...

Jacobs Builders entered into a contract with Kent to build him a home. The agreement stated that Jacobs would use only certain brand-name materials. Upon completion of the home, Kent discovered that...

What is Holt Renfrews basis for sustainable competitive advantage? Is this strategy sustainable?

Content AreaWhich of the following characteristics of a bond would an investor look for if they wanted to become a shareholder at a later date in time? a. Mortgage bond b. Convertible bond c....

Debt Management Ratios Calculate the times interest earned ratio for LaTonyas Flop Shops, Inc., using the following information. Sales are $1.5 million, cost of goods sold is $600,000, depreciation...

Furniture costing $ 55,000 is sold at its book value in 2013. Acquisitions of furniture total $ 45,000 cash, on which no depreciation is necessary because it is acquired at year- end. What is the...

Compute cash flows from investing activities using the following company information. Sale of short-term investments . . . . . . . . . . $ 6,000 Cash collections from customers . . . . . . . . ....

Compute cash flows from financing activities using the following company information. Additional short-term borrowings . . . . . . . . . . $ 20,000 Purchase of short-term investments . . . . . . . ....

Consider the following three stocks: Stock A is expected to provide a dividend of $10 a share forever starting at the end of the first year (time t = 1). Stock B is expected to pay a dividend of $5...

thank you Which of the following is a fixed cost? A Direct labor cost B Direct materials cost Straight-line depreciation expense Sales commission expense

Comparative income statements and balance sheets for Coca-Cola are shown below ($ millions) Income Statement Year 2 Year 1 Revenues Net Sales $20,092 19,889 Cost of Sales 6,044 6,204 Gross Profit...