In: Finance
Consider the following cash flows: |
Year | Cash Flow |
0 | $-28,400 |
1 | 15,300 |
2 | 13,600 |
3 | 10,000 |
Requirement 1: |
What is the profitability index for the above set of cash flows if the relevant discount rate is 8 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).) |
Profitability index |
|
Requirement 2: |
What is the profitability index if the discount rate is 13 percent? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).) |
Profitability index |
|
Requirement 3: |
What is the profitability index if the discount rate is 22 percent? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).) |
Profitability index |
|
Profitability Index= PV of future cash flows/Initial investment
Project A
PV of future cash flows is calculated using a financial calculator by inputting the below:
The present value of cash flows is $5,364.50.
Profitability Index= $5,364.50/ $28,400 = 0.19
Project B
PV of future cash flows is calculated using a financial calculator by inputting the below:
The present value of cash flows is $2,721.12.
Profitability Index= $2,721.12/ $28,400 = 0.0958 0.10.
Project C
PV of future cash flows is calculated using a financial calculator by inputting the below:
The present value of cash flows is -$1,21.62.
Profitability Index= -$1,21.62/ $28,400 = -0.04.
In case of any query, kindly comment on the solution.