What is the Profitability Index of a project that costs $39,000 today and is expected to...

What is the Profitability Index of a project that costs $39,000 today and is expected to generate annual cash inflows of $5,000 for the following 8 years. Assume the company's WACC is 9%. Round to two decimal places.

Expert Solution

Profitability index		=	Present value of cash inflow	/	Cost of project
		=	$ 27,674.10	/	$ 39,000.00
		=	0.71

Working:

Year	Cash inflow	Discount factor	Present value
a	b	c=1.09^-a	d=b*c
1	$ 5,000	0.9174	$ 4,587.16
2	$ 5,000	0.8417	$ 4,208.40
3	$ 5,000	0.7722	$ 3,860.92
4	$ 5,000	0.7084	$ 3,542.13
5	$ 5,000	0.6499	$ 3,249.66
6	$ 5,000	0.5963	$ 2,981.34
7	$ 5,000	0.5470	$ 2,735.17
8	$ 5,000	0.5019	$ 2,509.33

Total			$ 27,674.10

jeff jeffy answered 7 months ago

-What is the Profitability Index of a project that costs $28,000 today and is expected to...

-What is the Profitability Index of a project that costs $28,000 today and is expected to generate annual cash inflows of $3,000 for the following 11 years. Use discount rate of 7%. Round to two decimal places. -Installing a solar panel system on your roof comes with a total upfront cost of $18,000 after all tax credits. If the solar panels reduce your utility bill by $1000 per year, what is the Payback Period of installing the solar panel system?...

4. What is the Profitability Index of a project that costs $30,000 today and is expected...

4. What is the Profitability Index of a project that costs $30,000 today and is expected to generate annual cash inflows of $3,000 for the following 12 years. Cost of capital is 6%. Round to two decimal places.

What is the profitability index of a project that costs $8,000 and provides cash flows of...

What is the profitability index of a project that costs $8,000 and provides cash flows of $2,100 in years 1 and 2 and $4,100 in years 3 and 4? The discount rate is 10%. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

What is the NPV of a project that costs $120,000 today and is expected to generate...

What is the NPV of a project that costs $120,000 today and is expected to generate annual cash inflows of $10,000 for the next 12 years, followed by a final inflow of $21,000 in the year after. Use discount rate of 14%. Round to the nearest cent.

What is the NPV of a project that costs $31,000 today and is expected to generate...

What is the NPV of a project that costs $31,000 today and is expected to generate annual cash inflows of $11,000 for the next 7 years, followed by a final inflow of $13,000 in year 8. Cost of capital is 8.7%. Round to the nearest cent.

What is the NPV of a project that costs $111,000 today and is expected to generate...

What is the NPV of a project that costs $111,000 today and is expected to generate annual cash inflows of $12,000 for the next 11 years. Cost of capital (discount rate) is 11%. Round to the nearest cent.

What is the NPV of a project that costs $38,000 today and is expected to generate...

What is the NPV of a project that costs $38,000 today and is expected to generate annual cash inflows of $9,000 for the next 7 years, followed by a final inflow of $15,000 in year 8. Cost of capital is 7.4%. Round to the nearest cent.

Profitability Index Per the strict observance of the rules of Profitability Index, this project would be...

Profitability Index Per the strict observance of the rules of Profitability Index, this project would be accepted because it meets the definition of >1. But as your pointed out, there are other considerations to factor into this decision. Most business decisions have a basis in financial support - or reason for undertaking a project. But there are non-quantitative reasons for undertaking or not undertaking a project... Class What are some non-financial reasons for undertaking a project that has a Profitability...

Profitability index Estimating the cash flow generated by $1 invested in a project The profitability index...

Profitability index Estimating the cash flow generated by $1 invested in a project The profitability index (PI) is a capital budgeting tool that is defined as the present value of a project’s cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Happy Dog Soap Company is considering investing $2,225,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $275,000 Year 2 $500,000 Year 3 $450,000...

20. What is the PI (Profitability Index) ratio for the project? Will you accept the project...

20. What is the PI (Profitability Index) ratio for the project? Will you accept the project based on the PI ratio?

Question