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

Question

What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent?

What is the profitability index for the set of cash flows if the relevant discount rate is 15 percent?

What is the profitability index for the set of cash flows if the relevant discount rate is 22 percent?

Year Cash Flow 0 –$ 17,800 1 10,100 2 9,000 3 5,500

What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent?

What is the profitability index for the set of cash flows if the relevant discount rate is 15 percent?

What is the profitability index for the set of cash flows if the relevant discount rate is 22 percent?

Explanation / Answer

Year

Year

Cash Flow Discount Factor @10% PV of cash inflows @ 10% discount Discount Factor @15% PV of cash inflows @ 15% discount Discount Factor @22% PV of cash inflows @ 22% discount 0 –$ 17,800 1 1 1 1 10,100 0.909              9,181.82 0.870      8,782.61 0.820          8,278.69 2 9,000 0.826              7,438.02 0.756      6,805.29 0.672          6,046.76 3 5,500 0.751              4,132.23 0.658      3,616.34 0.551          3,028.89 Tota PV of cash Inflow            20,752.07    19,204.24       17,354.34 Profitability Index = PV of Cash inflow/Initial Cost                       1.17              1.08                  0.97 So PI at 10% discount =1.17 So PI at 15% discount =1.08 So PI at 22% discount =0.97

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