YearCash Flow 0–$17,500 1 9,800 2 8,700 3 5,200 What is the profitability index
ID: 2808692 • Letter: Y
Question
YearCash Flow
0–$17,500
1 9,800
2 8,700
3 5,200
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.)
a.Profitability index = a?
b.Profitability index = b?
c.Profitability index = c?
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.)
b. 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.)c. 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.)
Explanation / Answer
Investment = 17,500
a.
Year
Cash flows = CF
Df = 1/(1+10%)^Year
Present Value = CF x Df
1
9,800.00
0.909091
8,909.0909
2
8,700.00
0.826446
7,190.0826
3
5,200.00
0.751315
3,906.8370
PV of Cash inflows
20,006.0105
PI = PV of Cash Inflows / Investment =PI = 1.143
b.
Year
Cash flows = CF
Df = 1/(1+15%)^Year
Present Value = CF x Df
1
9,800.00
0.869565
8,521.7391
2
8,700.00
0.756144
6,578.4499
3
5,200.00
0.657516
3,419.0844
PV of Cash inflows
18,519.2734
PI = PV of Cash Inflows / Investment =PI = 1.058
c.
Year
Cash flows = CF
Df = 1/(1+22%)^Year
Present Value = CF x Df
1
9,800.00
0.819672
8,032.7869
2
8,700.00
0.671862
5,845.2029
3
5,200.00
0.550707
2,863.6758
PV of Cash inflows
16,741.6656
PI = PV of Cash Inflows / Investment =PI = 0.957
Year
Cash flows = CF
Df = 1/(1+10%)^Year
Present Value = CF x Df
1
9,800.00
0.909091
8,909.0909
2
8,700.00
0.826446
7,190.0826
3
5,200.00
0.751315
3,906.8370
PV of Cash inflows
20,006.0105
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