The Black Horse is currently considering a project that will produce cash inflows of $11,000 a...
The Black Horse is currently considering a project that will produce cash inflows of $11,000 a year for three years followed by $6,500 in Year 4. The cost of the project is $38,000. What is the profitability index if the discount rate is 9 percent?
A. .85
B. .93
C. 1.04
D. 1.09
E. 1.12
Homework Answers
| 9.00% | ||
| Cash Flow | Year | Present Value |
| -38000 | 0 | -38000 |
| 11000 | 1 | 10091.7431 |
| 11000 | 2 | 9258.4799 |
| 11000 | 3 | 8494.0183 |
| 6500 | 4 | 4604.7639 |
NPV = -5551
PI = 1 - 5551/38000 = 0.85
Ans A
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