Compute the PI statistic for Project Q if the appropriate cost of capital is 12 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) |
Project Q | |||||
Time: | 0 | 1 | 2 | 3 | 4 |
Cash flow | –$11,600 | $3,650 | $4,480 | $1,820 | $2,450 |
PI |
Should the project be accepted or rejected? | ||||
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Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=3650/1.12+4480/1.12^2+1820/1.12^3+2450/1.12^4
=$9682.816486
NPV=Present value of inflows-Present value of outflows
=$9682.816486-$11600
=($1917.183514)
PI=NPV/Present value of outflows
=(1917.183514)/11600
=(0.17)(Approx) or (16.52)%(Approx)(Negative)
Hence since PI is negative;project must be rejected.
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