Question

Year Cash Flow
0 –$18,600
1 10,900
2 9,800
3 6,300

a.	What is the profitability index for the 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 for the set of cash flows if the relevant 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 for the set of cash flows if the relevant discount rate is 22 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

Answer 1

solution Profitability Index PV of cash inflows/Inital investment Part a: Part c: Year | discount factor at 10% cash flow | PV Year | discount factor at 22% | cash flow | PV c-a*b c-a*b 0.90909 0.82645 0.75131 10,9009,909.09 9,8008,099.17 6,3004,733.28 22,741.5!5 18,600.00 1.223 0.81967 0.67186 0.55071 10,9008,934.43 9,8006,584.25 6,3003,469.45 18,988.13 18,600.00 1.021 PV of cash inflow PV of cash inflow Initial investment Initial investment Profitability Index (PI) Profitability Index (PI) Part b: Year | discount factor at 15% | cash flow | PV 0.86957 0.75614 0.65752 10,9009,478.26 9,8007,410.21 6,300 4,142.35 21,030.8.2 18,600.00 1.131 3 PV of cash inflow / Initial investment Profitability Index (PI)