What is the profitability index for the above set of cash flows if the relevant

Question

  

  

What is the profitability index for the above set of cash flows if the relevant discount rate is 11 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)

  

  

  

What is the profitability index if the discount rate is 16 percent? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).)

    

  

  

What is the profitability index if the discount rate is 23 percent? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).)

  

  

Consider the following cash flows:

Explanation / Answer

Profitability index= Present value of cash inflows / Initial investment

1) PI = 32904/29600 i.e 1.111

2) PI = 30331/29600 i.e 1.024

3) PI = 27265/29600 i.e 0.9211

Particulars Year Cash Flow PVF @ 11% PVF @ 16% PVF @ 23% PV @ 11% PV @ 16% PV @ 23% Cash outflow 0 29600 1 1 1        29,600        29,600        29,600 Present value of cash outflows        29,600        29,600        29,600 Cash inflow 1 14100 0.9009 0.8621 0.813        12,703        12,156        11,463 Cash inflow 2 14800 0.8116 0.7432 0.661        12,012        10,999           9,783 Cash inflow 3 11200 0.7312 0.6407 0.5374           8,189           7,176           6,019 Present value of cash inflows        32,904        30,331        27,265 Net Present Value           3,304              731         -2,335

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