Vail Recreation is analyzing a project that will generate cash flows of $10,650, $11,600, $14,700, and...

Vail Recreation is analyzing a project that will generate cash flows of $10,650, $11,600, $14,700, and $9,200 over each of the next four years, respectively. The profitability index (PI) is the way they analyze their investment projects. The appropriate required return for a project like this is 9 percent. This project has a PI of 1.347. Based on this information provided, determine the Time 0 cost for this project.

Expert Solution

Ans $ 27767.44

Year	Project Cash Flows (i)	DF@ 9%	DF@ 9% (ii)	PV of Project ( (i) * (ii) )

1	10650	1/((1+9%)^1)	0.917431	9,770.64
2	11600	1/((1+9%)^2)	0.841680	9,763.49
3	14700	1/((1+9%)^3)	0.772183	11,351.10
4	9200	1/((1+9%)^4)	0.708425	6,517.51
		NPV	37,402.74

	PI =	Present value of cash inflows / Cash outflows
	1.347 =	37402.74 / Cash outflows
	Cash Outflows =	37402.74 / 1.347
	Cash Outflows =	27767.44

jeff jeffy answered 1 year ago

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