What is the profitability index for the set of cash flows if the relevant discou
ID: 2756859 • Letter: W
Question
What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
What is the profitability index for the set of cash flows if the relevant discount rate is 15 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
What is the profitability index for the set of cash flows if the relevant discount rate is 22 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
Year Cash Flow 0 –$ 18,300 1 10,600 2 9,500 3 6,000
Explanation / Answer
1. Cash outflow : 18,300/-
Cost of capital is 10 %
Present value of cash inflow: 10,600 .909 9,635
9,500 .826 7,847
6,000 .751 4,508
Present value of cash inflow 21,990/-
NPV 3,690/-
Profitability Index 21,990/ 18,300 = 1.20
Cost of capital is 15 %
Present value of cash inflow: 10,600 .8696 9,218
9,500 .7561 7,183
6,000 .6575 3,945
Present value of cash inflow 20,346/-
NPV 2,046/-
Profitability Index 20,346/ 18,300 = 1.11
Cost of capital is 22 %
Present value of cash inflow: 10,600 .8197 8,689
9,500 .6719 6,383
6,000 .5507 3,304
Present value of cash inflow 18,376/-
NPV 76/-
Profitability Index 18,376/ 18,300 = 1.00
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