A project with an initial cost of $30,700 is expected to provide cash flows of $10,950,...

A project with an initial cost of $30,700 is expected to provide cash flows of $10,950, $11,800, $14,900, and $9,400 over the next four years, respectively. If the required return is 9.2 percent, what is the project's profitability index?

1.392
1.031
1.134
1.237
.808

Expert Solution

Ans 1.237

Year	Project Cash Flows (i)	DF@ 9.2%	DF@ 9.2% (ii)	PV of Project A ( (i) * (ii) )

1	10950	1/((1+9.2%)^1)	0.916	10,027.47
2	11800	1/((1+9.2%)^2)	0.839	9,895.48
3	14900	1/((1+9.2%)^3)	0.768	11,442.43
4	9400	1/((1+9.2%)^4)	0.703	6,610.55
		TOTAL		37,975.93


	PROFITABILITY INDEX =	PRESENT VALUE OF CASH INFLOWS / CASH OUTFLOW
		37975.93 / 30700
		1.237

jeff jeffy answered 1 year ago

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