In: Finance
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
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: