Compute the PI statistic for Project Zer the appropriate cost of capital is 6 percent (Do...

Question

Question

Compute the PI statistic for Project Zer the appropriate cost of capital is 6 percent (Do not round intermediate calculations

Answer 1

Answer #1

Calculation of Profitability Index of Project Z
Year	Cash Flows	Discount Factor @6%	Discounted Cash flows
A	B	C = 1/ (1+6%)^n	*D = BC**
1	510	0.943396226	481.1320755
2	640	0.88999644	569.5977216
3	810	0.839619283	680.0916193
4	460	0.792093663	364.3630851
5	260	0.747258173	194.2871249
Present value of Future Cash flows			2289.471626

Initial investment of Project Z = ($1800)
Profitability Index = Present value of Future Cash flows / Initial Investment
	= 2289.471626 / 1800
	= 1.27

Profitability Index for Project Z is 1.27 and it is greater than 1
Hence, Project Z can be accepted

Answer 2

Answer #2

PI: 1.19

PI>1 = accepted

Answer 3

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