A project has the following cash flows: Year Cash Flows 0 −$127,800 1 47,000 2 63,800...

A project has the following cash flows: Year Cash Flows 0 −$127,800 1 47,000 2 63,800 3 51,600 4 28,100 The required return is 8.3 percent. What is the profitability index for this project?

Expert Solution

Ans 1.24

Year	Project Cash Flows (i)	DF@ 8.3%	DF@ 8.3% (ii)	PV of Project B( (i) * (ii) )

1	47000	1/((1+8.3%)^1)	0.923	43,397.97
2	63800	1/((1+8.3%)^2)	0.853	54,395.60
3	51600	1/((1+8.3%)^3)	0.787	40,622.28
4	28100	1/((1+8.3%)^4)	0.727	20,426.43
		NPV		1,58,842.28

	Total of PV of Cash Inflows			158842.28
	Cash Outflows			127800

	Profitability Index =			1.24
Present value of cash Inflow / Initial Investment (Cash Outflows)				(158842.28 / 127800)

jeff jeffy answered 1 year ago

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