Question

In: Finance

Year Cash Flow 0 −$7,800           1 4,300           2 5,200           3 3,200      &nb

Year Cash Flow
0 −$7,800          
1 4,300          
2 5,200          
3 3,200          

  

a. What is the profitability index for the cash flows if the relevant discount rate is 8 percent?

  

b. What is the profitability index for the cash flows if the relevant discount rate is 16 percent?

  

c. What is the profitability index for the cash flows if the relevant discount rate is 25 percent?

Solutions

Expert Solution

a) Profitability Index=1+NPV/Initial Investment

Profitability Index=0.592

b)Profitability Index=0.766

c)Profitability Index=0.922


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