eztomheducation com/hm.tpx ·.. .QSearch st Visited Getting Started My USC Aiken-

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eztomheducation com/hm.tpx ·.. .QSearch st Visited Getting Started My USC Aiken-Black The True Story of Poca.. Problem 8-13 Calculating Profitability Index [LO 6] Consider the following cash flows: Cash Flow $29,900 13,800 15,100 11,500 What is the profitability index for the cash flows if the relevant discount rate is 8 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 if the discount rate is 13 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 if the discount rate is 20 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) Profitability index eBook & Resources Worksheet Difficulty: 1 Basic n: 8.5 the Profitability Index Problem 8-13 Calculating Profitability Index [LO 6) Learning Objective: 08-06 Calculate the profitability index and understand ts relation to net present value

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

At 8%

Present value of inflows=13800/1.08+15100/1.08^2+11500/1.08^3

=$34852.66

PI=Present value of inflows/Present value of outflows

$34852.66/$29900

=1.166(Approx)

At 13%

Present value of inflows=13800/1.13+15100/1.13^2+11500/1.13^3

=$32007.98

PI=Present value of inflows/Present value of outflows

$32007.98/$29900

=1.071(Approx)

At 20%

Present value of inflows=13800/1.2+15100/1.2^2+11500/1.2^3

=$28641/20

PI=Present value of inflows/Present value of outflows

=$28641/20/$29900

=0.958(Approx)

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