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Compute the PI statistic for Project X and note whether the firm should accept or reject...

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent.

  Time: 0 1 2 3 4 5
  Cash flow: -75 -75 0 100 75 50

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Expert Solution

PI is 1.10
Statement showing Cash flows
Particulars Time PVf 10% Amount PV
Cash Outflows                              -                   1.0000                 (75.00)                 (75.00)
Cash Outflows                              -                   0.9091                 (75.00)                 (68.18)
PV of Cash outflows = PVCO               (143.18)
Cash inflows                         1.00                 0.9091                           -  
Cash inflows                         2.00                 0.8264                           -  
Cash inflows                         3.00                 0.7513                 100.00                    75.13
Cash inflows                         4.00                 0.6830                    75.00                    51.23
Cash inflows                         5.00                 0.6209                    50.00                    31.05
PV of Cash Inflows =PVCI                 157.40
PI = PVCI/PVCO                      1.10

jeff jeffy answered 1 year ago
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