1. A project has an initial cost of $37,050, expected net cash inflows of $12,000 per year for 7 years, and a cost of capital of 13%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.
2. A project has an initial cost of $49,700, expected net cash inflows of $11,000 per year for 8 years, and a cost of capital of 11%. What is the project's payback period? Round your answer to two decimal places.
1.Profitability index is calculated using the below formula:
Profitability Index= NPV + Initial investment/ Initial investment
Net present value is calculated using a financial calculator by inputting the below:
The net present value of cash flows is $16,021.33.
Profitability Index= $37,050 +$16,021.33/ $37,050
= $53,071.33/ $37,050
= 1.4324 1.43.
2.Payback period=full years until recovery + unrecovered cost at the start of the year/cash flow during the year
= 4 years+ ($49,700 - $44,000)/ $11,000
= 4 years + $5,700/ $11,000
= 4 years + 0.5182
= 4.52 years
In case of any query, kindly comment on the solution
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