A project is expected to provide cash flows of $11,700, $12,300, $15,400, and $9,900 over the...
A project is expected to provide cash flows of $11,700, $12,300, $15,400, and $9,900 over the next four years, respectively. At a required return of 8.2 percent, the project has a profitability index of .713. For this to be true, what is the project's cost at Time 0?
Homework Answers
Present value of cash flow = 11,700 / (1 + 0.082)^1 + 12,300 / (1 + 0.082)^2 + 15,400 / (1 + 0.082)^3 + 9,900 / (1 + 0.082)^4
Present value of cash flows = 10,813.30869 + 10,506.31917 + 12,157.35052 + 7,223.141979
Present value of cash flows = 40,700.12036
Profitability index = Present value / cost at time 0
0.713 = 40,700.12036 / Cost at time 0
Cost at time 0 = $57,082.92
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