Question

In: Finance

If the relevant discount rate for the following set of cash flows is 7 percent, the...

If the relevant discount rate for the following set of cash flows is 7 percent, the profitability index is . If the discount rate is 15 percent, the profitability index is . If the discount rate is 23 percent, the profitability index is . (Round your answers to 3 decimal places. (e.g., 32.162))

Year Cash Flow

0 −$9,900

1 5,400

2 4,400

3 3,900

Solutions

Expert Solution

The Initial Investment =9900

If the discount rate is 7%, the present value of future cash flow= 5400/(1+7%) + 4400/(1+7%)^2+3900/(1+7%)^3=12073.42

Profitability index= Present Value of future cash flow/Initial Investment=12073.42/9900=1.220

If the rate is 15%, then PI=1.069, Calculation given below:

If the rate is 23%, then PI=0.949, Calculation given below:


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