Reflex Llc is investing a new printer that cost $100,000. The printer would gene

Question

Reflex Llc is investing a new printer that cost $100,000. The printer would generate cash flow saving of $ 100,000 for each of the nexts three years. Reflex uses a 15 % discount rate. What is the present value index?
A. 2.15 B. 2.28 C 2.37 D 2.44 Reflex Llc is investing a new printer that cost $100,000. The printer would generate cash flow saving of $ 100,000 for each of the nexts three years. Reflex uses a 15 % discount rate. What is the present value index?
A. 2.15 B. 2.28 C 2.37 D 2.44
A. 2.15 B. 2.28 C 2.37 D 2.44

Explanation / Answer

B. 2.28

Working:

1) Present Value Index = Present Value of Cash inflows/Initial cost = $   2,28,322.51 / $ 1,00,000 = 2.28 2) Present Value of annual cash inflows: Year Cash flows Discount factor Present Value a b c=1.15^-a d=b*c 1 $ 1,00,000 0.869565 $      86,956.52 2 $ 1,00,000 0.756144 $      75,614.37 3 $ 1,00,000 0.657516 $      65,751.62 Total $   2,28,322.51

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