Consider the following cash flows: Year Cash Flow 0 $-28,500 1 15,200 2 13,700 3

Question

Consider the following cash flows: Year Cash Flow 0 $-28,500 1 15,200 2 13,700 3 10,100

Requirement 1: What is the profitability index for the above set of cash flows if the relevant discount rate is 10 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)

Profitability index Requirement 2: What is the profitability index if the discount rate is 15 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)

Profitability index Requirement 3: What is the profitability index if the discount rate is 22 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)

Explanation / Answer

requirement1 :

PV of cash flows = 15200/1.1 + 13700/1.1^2 + 10100/1.1^3 = 32728.7753569

Proftability index = 32728.7753569/28500 = 1.148

requirement 2:

PV of cash flows = 15200/1.15 + 13700/1.15^2 + 10100/1.15^3 = 30217.4734939

Proftability index = 30217.4734939/28500 = 1.060

requirement 3:

PV of cash flows = 15200/1.22 + 13700/1.22^2 + 10100/1.22^3 = 27225.6708711

Proftability index = 27225.6708711/28500 = 0.955

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