Question

In: Finance

A project has an initial cost of $70,900, expected net cash inflows of $11,000 per year...

A project has an initial cost of $70,900, expected net cash inflows of $11,000 per year for 8 years, and a cost of capital of 8%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.

Solutions

Expert Solution

Discount rate 8.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
         (70,900.000) 0                           (70,900.00)                       (70,900.00)
           11,000.000 1                             10,185.19                       (60,714.81)
           11,000.000 2                               9,430.73                       (51,284.09)
           11,000.000 3                               8,732.15                       (42,551.93)
           11,000.000 4                               8,085.33                       (34,466.60)
           11,000.000 5                               7,486.42                       (26,980.19)
           11,000.000 6                               6,931.87                       (20,048.32)
           11,000.000 7                               6,418.39                       (13,629.93)
           11,000.000 8                               5,942.96                          (7,686.97)

PI = 1 - 7686.97/70,900 = 0.89


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