A project has the following cash flows: Year Cash Flows 0 −$130,000 1 60,200 2 63,800...

Question

Question

A project has the following cash flows:

The required return is 8.1 percent. What is the profitability index for this project?

Answer 1

Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=60200/1.081+63800/1.081^2+51600/1.081^3+28100/1.081^4

=$171,712.4304

PI=Present value of inflows/Present value of outflows

=$171,712.4304/$130,000

=1.321(Approx).

Answer 2

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