Year Cash Flow 0) –$ 17,400 1) 9,700 2) 8,600 3) 5,100 What is the profitability
ID: 2737448 • Letter: Y
Question
Year Cash Flow
0) –$ 17,400
1) 9,700
2) 8,600
3) 5,100
What is the profitability index for the set of cash flows if the relevant discount rate is 11 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) Profitability index
What is the profitability index for the set of cash flows if the relevant discount rate is 16 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) Profitability index
What is the profitability index for the set of cash flows if the relevant discount rate is 23 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) Profitability index
Explanation / Answer
profitability index =Present value of future cash flows/initial investment
1)
when discount rate is 11%
PV=9700/1.11^1+8600/1.11^2+5100/1.11^3=19447.77
profitability index =Present value of future cash flows/initial investment=19446.77/17400=1.118
2)
when discount rate is 16%
PV=9700/1.16^1+8600/1.16^2+5100/1.16^3=18020.62
profitability index =Present value of future cash flows/initial investment=18020.62/17400=1.036
1)
when discount rate is 23%
PV=9700/1.23^1+8600/1.23^2+5100/1.23^3=16311.28
profitability index =Present value of future cash flows/initial investment=16311.28/17400=0.937
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