Question

Consider the following cash flows: Year O WN - Cash Flow -$29,500 16,900 13,600 8,300 a. What is the profitability index for the above 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 if the 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 if the discount rate is 22 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) a. Profitability index Profitability index Profitability index

Answer 1

0 year cash flows -$29,500 $16,900 2 $13,600 31 $8,300 pv @ 10% 1.0000 0.9091 0.8264 0.7513 NPV pv @ 15% 1.0000 0.8696 0.7561 0.6575 pv @ 22% 1.0000 0.8197 0.6719 0.5507 present value at 10% rate present value at 15% rate present value at 22% rate -$29,500 -$29,500 -$29,500 $15,364 $14,696 $13,852 $11,240 $10,284 $9,137 $6,236 $5,457 $4,571 $3,339.22 $936.59 -$1,939.35 a. profitability index = 1+ (NPV/Initial cost) 1.113 at 10 percent b. profitability index = 1+ (NPV/Initial cost) 1.032 at 15 percent C. profitability index = 1+ (NPV/Initial cost) 0.934 at 22 percent