MC algo 9-21 Calculating Profitability Index POD has a project with the following cash flows: Year...

Question

Question

MC algo 9-21 Calculating Profitability Index POD has a project with the following cash flows: Year Skipped Cash Flows -$253,0

Answer 1

Answer #1

Profitability index is calculated by using the below formula:

Profitability Index= NPV + Initial investment/ Initial investment

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

Press the CF button.
CF0= -$253,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.
Cash flow for each year should be entered.
Press Enter and down arrow after inputting each cash flow.
After entering the last cash flow cash flow, press the NPV button and enter the required return of 8.2%.
Press enter after that. Press the down arrow and CPT buttons to get the net present value.

Net present value at 8.2% required return is $125,425.29.

Profitability Index= $125,425.29 + $253,000/ $253,000

= $378,425.29/ $253,000

= 1.4958 1.50

In case of any query, kindly comment on the solution.

Answer 2

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