In: Finance
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?
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 | |||