In: Finance
POD has a project with
the following cash flows:
Year | Cash Flows | |
0 | −$255,000 | |
1 | 146,800 | |
2 | 164,300 | |
3 | 129,400 | |
The required return is 9.6 percent. What is the profitability index
for this project?
Ans 1.45
Year | Project Cash Flows (i) | DF@ 9.6% | DF@ 9.6% (ii) | PV of Project A ( (i) * (ii) ) |
1 | 146800 | 1/((1+9.6%)^1) | 0.912 | 1,33,941.61 |
2 | 164300 | 1/((1+9.6%)^2) | 0.832 | 1,36,778.06 |
3 | 129400 | 1/((1+9.6%)^3) | 0.760 | 98,288.48 |
NPV | 3,69,008.15 | |||
Total of PV of Cash Inflows | 369008.15 | |||
Cash Outflows | 255000 | |||
Profitability Index = | 1.45 | |||
Present value of cash Inflow / Initial Investment (Cash Outflows) | (369008.15/ 255000) | |||