Year Cash Flow 0 –$ 18,400 1 10,700 2 9,600 3 6,100 What is the profitability in
ID: 2782296 • Letter: Y
Question
Year Cash Flow 0 –$ 18,400 1 10,700 2 9,600 3 6,100 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
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
At 11%
Present value of inflows=10700/1.11+9600/1.11^2+6100/1.11^3
=$21891.48(Approx)
PI=Present value of inflows/Present value of outflows
=$21891.48/$18400=1.190
At 16%
Present value of inflows=10700/1.16+9600/1.16^2+6100/1.16^3
=$20266.51(Approx)
PI=Present value of inflows/Present value of outflows
=$20266.51/$18400=1.101(Approx)
At 23%
Present value of inflows=10700/1.23+9600/1.23^2+6100/1.23^3
=$18322.66(Approx)
PI=Present value of inflows/Present value of outflows
=$18322.66/$18400=0.996(Approx)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.