A firm is reviewing a project that has an initial cost of $67,000. The project will...
A firm is reviewing a project that has an initial cost of $67,000. The project will produce annual cash inflows, starting with Year 1, of $8,000, $13,400, $18,600, $24,100, and finally in Year 5, $37,900. What is the profitability index if the discount rate is 12 percent?
A) .92
B) .98
C) 1.02
D) 1.05
E) 1.09
Homework Answers
Present value = 8,000 / (1 + 0.12)1 + 13,400 / (1 + 0.12)2 + 18,600 / (1 + 0.12)3 + 24,100 / (1 + 0.12)4 + 37,900 / (1 + 0.12)5
Present value = 67,885.8312
profitability index = Present value / initial investment
profitability index = 67,885.8312 / 67,000
profitability index = 1.02
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