Question

The Fitness Center is considering including a treadmill in this​ year's capital budget. The cash outlay for the treadmill is

$1,590.

The​ firm's cost of capital is

6.6%.

​After-tax cash​ flows, including​ depreciation, are as shown in the table below. Calculate the profitability index​ (PI) for this project.

End of Year	Cash Flow
1	$530
2	530
3	530
4	530
5	530

The present value of the cash inflows is

​$nothing .

​(Round to the nearest​ cent.)The profitability index is

nothing

Answer 1

Ans  present value of the cash inflows is $ 2196.58

The profitability index is 1.38

Year	Project Cash Flows (i)	DF@ 6.6%	DF@ 6.6% (ii)	PV of Project A ( (i) * (ii) )
1	530	1/((1+6.6%)^1)	0.938	497.19
2	530	1/((1+6.6%)^2)	0.880	466.40
3	530	1/((1+6.6%)^3)	0.826	437.53
4	530	1/((1+6.6%)^4)	0.774	410.44
5	530	1/((1+6.6%)^5)	0.726	385.03
		PV		2,196.58
	Total of PV of Cash Inflows			2196.58
	Cash Outflows			1590
	Profitability Index =			1.38
Present value of cash Inflow / Initial Investment (Cash Outflows)				(2196.58/1590)