A project that requires 15 percent return has the following expected cash flows. Year

Question

Question

A project that requires 15 percent return has the following expected cash flows.

Year Cash Flow

1 $90,000

2 100,000

3 110,000

4 120,000

5 130,000

The initial investment is $300,000. Find the profitability index (PI).

Answer 1

Answer #1

Profitability index = Present value of future cash inflows / initial investment

PI = 1.198 or 1.20 (if rounded off to 2 decimals)

Answer 2

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