Calculate the profitability index (PI) for the following cash flows if the relevant discount rate is...

Calculate the profitability index (PI) for the following cash flows if the relevant discount rate is 10%

Year	Cash Flow
0	-15,300
1	9,400
2	7,600
3	4,300

Expert Solution

Answer----------Profitability index (PI) = 1.18

Working

Year	Cash Inflows (outflows)	table factor	Present values of cash flows

1	$ 9,400	0.90909	$ 8,545
2	$ 7,600	0.82645	$ 6,281
3	$ 4,300	0.75131	$ 3,231
Present value of cash flows (A)			$ 18,057
Less: Initial Investment (B)			$ 15,300.00
Profitability index (A/B)			1.18

ekkarill92 answered 2 years ago

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