Can I please get step by step instructions on how to solve this. The answers are

Question

Can I please get step by step instructions on how to solve this. The answers are already there but I don't understand how to solve it. Thank You

Find the profitability index (PI) for the following series of future cash flows, assuming the company’s cost of capital is 7.03 percent. The initial outlay is $322,901.

Year 1: $152,942

Year 2: $133,850

Year 3: $196,878

Year 4: $173,379

Year 5: $141,280

Round the answer to two decimal places.

Answer:

Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 8.11 percent. What is the PI of a project if the initial costs are $2,379,170 and the project life is estimated as 7 years? The project will produce the same after-tax cash inflows of $625,712 per year at the end of the year.

Round the answer to two decimal places.

Answer:

Good Morning Food, Inc. is using the profitability index (PI) when evaluating projects. You have to find the PI for the company’s project, assuming the company’s cost of capital is 9.21 percent. The initial outlay for the project is $371,717. The project will produce the following end-of-the-year after-tax cash inflows of

Year 1: $154,459

Year 2: $33,282

Year 3: $180,165

Year 4: $255,432

Round the answer to two decimal places.

Answer:

A project has an initial outlay of $1,659. It has a single payoff at the end of year 4 of $7,248. What is the profitability index (PI) of the project, if the company’s cost of capital is 13.04 percent?

Round the answer to two decimal places.

Answer:

Explanation / Answer

Answer 1 Profitability Index = PV of future cash flows / Initial Investment Calculation of present value of future cash flows Year Cash flows PV factor @ 7.03% Present value 1 152942 0.934317481 $1,42,896.38 2 133850 0.872949155 $1,16,844.24 3 196878 0.815611656 $1,60,575.99 4 173379 0.762040228 $1,32,121.77 5 141280 0.711987506 $1,00,589.59 present value of future cash flows $6,53,027.99 Profitability Index = $653027.99 / $322901 = 2.02 Answer 2 Calculation of present value of future cash flows Year Cash flows PV factor @ 8.11% Present value 1 625712 0.924983813 $5,78,773.47 2 625712 0.855595054 $5,35,356.09 3 625712 0.791411575 $4,95,195.72 4 625712 0.732042896 $4,58,048.02 5 625712 0.677127829 $4,23,687.01 6 625712 0.626332281 $3,91,903.62 7 625712 0.579347222 $3,62,504.51 present value of future cash flows $32,45,468.45 Profitability Index = PV of future cash flows / Initial Investment Profitability Index = $3245468.45 / $2379170 = 1.36 Answer 3 Profitability Index = PV of future cash flows / Initial Investment Calculation of present value of future cash flows Year Cash flows PV factor @ 9.21% Present value 1 154459 0.915667063 $1,41,433.02 2 33282 0.838446171 $27,905.17 3 180165 0.767737543 $1,38,319.43 4 255432 0.702991982 $1,79,566.65 present value of future cash flows $4,87,224.27 Profitability Index = $487224.27 / $371717 = 1.31 Answer 4 Profitability Index = PV of future cash flows / Initial Investment Calculation of present value of future cash flows Year Cash flows PV factor @ 13.04% Present value 1 0 0.884642604 $0.00 2 0 0.782592537 $0.00 3 0 0.692314701 $0.00 4 7248 0.61245108 $4,439.05 present value of future cash flows $4,439.05 Profitability Index = $4439.05 / $1659 = 2.68

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