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Good Morning Food, Inc. is using the profitability index (PI) when evaluating projects. You have to...

Good Morning Food, Inc. is using the profitability index (PI) when evaluating projects. You have to find the PI for the company’s project, assuming the company’s cost of capital is 9.92 percent. The initial outlay for the project is $368,538. The project will produce the following end-of-the-year after-tax cash inflows of

Year 1: $155,548

Year 2: $144,874

Year 3: $15,293

Year 4: $374,481

Round the answer to two decimal places.

How do I do this in excel?

Solutions

Expert Solution

Computation of profitability index
year Cash flow PVIF @ 9.92% Present value
1 155,548             0.9098 $                   141,510.19
2 144,874             0.8276 $                   119,904.92
3 15,293             0.7530 $                     11,514.96
4 374,481             0.6850 $                   256,520.99
a Present value of cash flow $                   529,451.06
b PV of outflow 368,538
c=a/b Profitability index                                  1.44
Ans =                                  1.44

jeff jeffy answered 1 year ago
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