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EXCEL SOLUTION NEEDED PLEASE: EXCEL FORMULA The profitability index is the present value of the future...

EXCEL SOLUTION NEEDED PLEASE: EXCEL FORMULA

The profitability index is the present value of the future cash flows divided by the initial investment. If you remember, the NPV function really only calculates the present value of future cash flows, so we will use the NPV function divided by the initial investment to calculate the profitability index as follows:

Suppose we have a project with the following cash flows and required return. What is the profitability index of the project?

t Cash flow
0 $              (30,000)
1                     8,000
2                   10,000
3                   11,000
4                   17,000
5                   12,000
Required return: 12%
PI:
Accept or reject:
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Answer #1

B10 B9/-B2) Cash Flow 0 4 10000 11000 17000 6 4 8 Required Return: 9 PV of Cash Inflow 10 Pl: Formula: -NPV(12%, B3:B7 40557.31 1.35 12 PI is greater than 1, so, accept this project. 13 14 15 16

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