A project has an initial cost of $70,000, expected net cash inflows of $15,000 per year...

A project has an initial cost of $70,000, expected net cash inflows of $15,000 per year for 10 years, and a cost of capital of 12%. What is the project's PI? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.

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Expert Solution

PI = Present value of cash flows / Initial investment

PI = ($15,000/1.12 + $15,000/1.12^2 + $15,000/1.12^3 + $15,000/1.12^4 + $15,000/1.12^5 + $15,000/1.12^6 + $15,000/1.12^7 + $15,000/1.12^8 + $15,000/1.12^9 + $15,000/1.12^10) / $70,000

PI = 1.21

jeff jeffy answered 1 year ago

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