A project has an initial cost of $71,975, expected net cash inflows of $14,000 per year...

A project has an initial cost of $71,975, expected net cash inflows of $14,000 per year for 10 years, and a cost of capital of 10%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.

Expert Solution

Answer:
Calculation of Profitability Index

Formula =	Present value of cash inflows
	Initial cost

Initial cost =	71975.00
Year	Cash Inflows	Present value factor @ 10%	Present value of cash inflows
1	14000.00	0.90909	12727.27
2	14000.00	0.82645	11570.25
3	14000.00	0.75131	10518.41
4	14000.00	0.68301	9562.19
5	14000.00	0.62092	8692.90
6	14000.00	0.56447	7902.64
7	14000.00	0.51316	7184.21
8	14000.00	0.46651	6531.10
9	14000.00	0.42410	5937.37
10	14000.00	0.38554	5397.61
Total	86,023.94

Profitability Index =	Present value of cash inflows
	Initial cost

Profitability Index =	86023.94
	71975.00

Profitability Index =	1.20	(Answer)

jeff jeffy answered 2 years ago

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