In: Finance
Year | Cash Flow |
0 | −$9,600 |
1 | 2,600 |
2 | 3,700 |
3 | 3,900 |
(a) | What is the profitability index for the cashflows if the relevant discount rate is 9 percent? |
$0.842 $0.931 $0.913 $0.887 $0.86 |
(b) | What is the profitability index for the cashflows if the relevant discount rate is 15 percent? |
$0.834 $0.754 $0.794 $0.818 $0.77 |
(c) | What is the profitability index for the cashflows if the relevant discount rate is 27 percent? |
0.67 0.651 0.683 0.618 0.631 |
Ans a) 0.887
b) 0.794
c) 0.651
Year | Project Cash Flows (i) | DF@ 9% | DF@9% (ii) | PV of Project ( (i) * (ii) ) | DF@ 15% (iii) | PV of Project ( (i) * (iii) ) | DF@ 27% (iv) | PV of Project ( (i) * (iv) ) | |
1 | 2600 | 1/((1+9%)^1) | 0.917431 | 2,385.32 | 0.870 | 2,260.87 | 0.787 | 2,047.24 | |
2 | 3700 | 1/((1+9%)^2) | 0.841680 | 3,114.22 | 0.756 | 2,797.73 | 0.620 | 2,294.00 | |
3 | 3900 | 1/((1+9%)^3) | 0.772183 | 3,011.52 | 0.658 | 2,564.31 | 0.488 | 1,903.94 | |
NPV | 8,511.05 | NPV | 7,622.91 | NPV | 6,245.19 | ||||
Total of PV of Cash Inflows | 8511.05 | 7622.91 | 6245.19 | ||||||
Cash Outflows | 9600 | 9600 | 9600 | ||||||
Profitability Index = | 0.887 | 0.794 | 0.651 | ||||||
Present value of cash Inflow / Initial Investment (Cash Outflows) | (8511.05/9600) | (7622.91/9600) | (6245.19/9600) |