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 1 week ago

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