Please review my answers and solve the highlighted part in yellow please:
Assume you have a capital budget of $300 and the following profitability indices and costs for five possible projects:a.)Which combination of projections maximizes NPV?[Show calculations.]
NPV = PI*C
A.1.45*100=145
B.1.4*150=210
C.1.35*175=236.25
D.1.2*100=120
E.1.1*25=27.5
***Best combination would be A+D+E = $292.5 leaving $7.5 for dividends/buyback
b)Would the ranking change if the PI for Project E was 1.18?Why?
NO, ranking would not change as 1.18*25= 29.5
A+D+E = 294.5 still leaving $5.5 for dividends/buybacks
c) Describe carefully what analysis must precede reliable PI estimates.
NOT SURE: PI = NPV/Cost ???
9)The annual cash flows savings from investing for $75 in a piece of equipment in year zero lasting four years has the following cash flow estimates:
a.Cash flow payback [show calculations}
Year 1: 75-50 = 25
Year 2: 25/75=.33
Cash Flow Payback = 2.33 Years
b. Discounted payback period at 10%
c. NPV at 10%?
Which measure is best and why?