1A. You have the following information on a project\'s cash flows. The project\'
ID: 2798893 • Letter: 1
Question
1A. You have the following information on a project's cash flows. The project's required rate is 12%.
Year
Cash flows
0
-$80,000
1
23,000
2
28,000
3
36,000
4
72,000
The project's profitablity index is ____ . Round it to two decimal places.
1B. A company is evaluating a new 5-year project. A cash flows analysis on the project reveals that during the first year, the project has projected sales of $130,000, costs of $74,300, and depreciation of $5,600. The tax rate is 35 percent. Calculate operating cash flow for the year. (Do not include the dollar signs ($). Round your answers to the nearest whole dollar amount. (e.g., 32))
Year
Cash flows
0
-$80,000
1
23,000
2
28,000
3
36,000
4
72,000
Explanation / Answer
1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=23000/1.12+28000/1.12^2+36000/1.12^3+72000/1.12^4
=$114238.5334
PI=Present value of inflows/Present value of outflows
=$114238.5334/$80,000
=1.43(Approx)
2.operating cash flow=(Sales-Costs)(1-tax rate)+(Tax rate*Depreciation expense)
=(130,000-74300)(1-0.35)+(0.35*5600)
which is equal to
=38165.
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