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Anika [276]
2 years ago
15

What is the opportunity coast in using pi over npv?

Business
1 answer:
salantis [7]2 years ago
4 0

<span>Topics Reference Advisors Markets Simulator Academy</span>  Profitability Index<span>By Investopedia</span><span> SHARE </span><span> </span><span>                                     Chapter One                                     Chapter Two                                     Chapter Three                                     Chapter Four                                     Chapter Five                              </span><span>Chapter One Chapter Two Chapter Three Chapter Four Chapter Five</span><span><span>4.1 Net Present Value And Internal Rate Of Return4.2 Capital Investment Decisions4.3 Project Analysis And Valuation4.4 Capital Market History4.5 Return, Risk And The Security Market Line</span><span>4.1.1 Introduction To Net Present Value And Internal Rate Of Return4.1.2 Net Present Value4.1.3 Payback Rule4.1.4 Average Accounting Return4.1.5 Internal Rate Of Return4.1.6 Advantages And Disadvantages Of NPV and IRR4.1.7 Profitability Index4.1.8 Capital Budgeting</span></span>
A profitability index attempts to identify the relationship between the costs and benefits of a proposed project. The profitability index is calculated by dividing the present value of the project's future cash flows by the initial investment. A PI greater than 1.0 indicates that profitability is positive, while a PI of less than 1.0 indicates that the project will lose money. As values on the profitability index increase, so does the financial attractiveness of the proposed project.

The PI ratio is calculated as follows:

<span>PV of Future Cash Flows
</span>Initial Investment

A ratio of 1.0 is logically the lowest acceptable measure for the index. Any value lower than 1.0 would indicate that the project's PV is less than the initial investment, and the project should be rejected or abandoned. The profitability index rule states that the ratio must be greater than 1.0 for the project to proceed.

For example, a project with an initial investment of $1 million and present value of future cash flows of $1.2 million would have a profitability index of 1.2. Based on the profitability index rule, the project would proceed. Essentially, the PI tells us how much value we receive per dollar invested. In this example, each dollar invested yields $1.20.

The profitability index rule is a variation of the net present value (NPV) rule. In general, if NPV is positive, the profitability index would be greater than 1; if NPV is negative, the profitability index would be below 1. Thus, calculations of PI and NPV would both lead to the same decision regarding whether to proceed with or abandon a project.

However, the profitability index differs from NPV in one important respect: being a ratio, it ignores the scale of investment and provides no indication of the size of the actual cash flows.

The PI can also be thought of as turning a project's NPV into a percentage rate.

(Find some profitable ideas in <span>8 Ways To Make Money With Real Estate</span> and Outside The Box Ways To Get Money.)
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Novak Corporation amended its pension plan on January 1, 2020, and granted $152,280 of prior service costs to its employees. The
m_a_m_a [10]

Answer:

26762.74

Explanation:

Prior service cost amortization for 2020 can be calculated by first calculating the average time until the employee's retirement. After calculating the average time until retirement we will divide the service cost at that time

Workings

average time until retirment  = 1880/330

average time until retirment = 5.69 years

prior service cost amortization for 2020 = $152,280/5.69

prior service cost amortization for 2020 = $26762.74

3 0
3 years ago
What are Costco business perks?
borishaifa [10]

Answer:

There are several perks or troubles that Costco business faces.

Explanation:

The first of these perks is the intense competition from other large retailers like Walmart, Target, or Best Buy. While Costco does have a niche: it tends to sell higher quality poducts for a slightly higher price, the competition is nevertheless stiff because that niche does not apply for all product lines that are sold.

The second perk is also competition, from online retailers, especially Amazon, which is larger than any traditional retailer, but also from a myriad of smaller retailers that emerge constantly in the online market, since the internet provides very few barriers to entry for new competitors.

Finally, the third peak is consumer preferences, and that is because consumers are constantly changing their tastes and preferences, especially in developed countries like the U.S. This means that Costco has to constantly adapt to new product lines, and discard other lines.

3 0
2 years ago
In order to calculate _____ using cost plus markup, a seller needs to know two things the cost of the item in the market.
Dafna11 [192]
I believe it’s selling price
4 0
3 years ago
Read 2 more answers
1. According to Wallach, what is short-termism, and why is it a problem?
Aleks04 [339]

I inferred you are to the 2017 TEDx talk "Short-termism is killing us: it's time for Long path" by Ari Wallach.

<u>Explanation:</u>

According to Wallach, he refers to short-termism as focusing on short-term results at the expense of long-term interests.

In his words, short-termism is a problem because;

  • "it prevents the CEO from buying really expensive safety equipment"
  • "prevents teachers from spending quality one-on-one time with their students".

So in summary what Wallach is saying is that short-termism prevents futuristic thinking.

6 0
2 years ago
Eduardo has always wanted to operate his own fast food restaurant but he knows the high failure rate of restaurants. To increase
telo118 [61]

Answer:

buying a franchise of a well-established restaurant.

Explanation:

A franchise business model is a business arrangement where the owner or 'franchisor' sells the rights of a business to ' franchisee' who operates an independent outlet.  The rights that a franchisee acquires include business name, logo,  business and operating models.  Examples of known franchises are MacDonald,  subway, and Starbucks.

The biggest advantage Eduardo will gain by purchasing a franchise is that he will get instant access to a well-established brand name.  Eduardo does not need to spend resources on creating a name, or products to introduce to customers. An established franchise will provide him with customers,  a management model, and a chance to succeed.

4 0
3 years ago
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