You are offered an investment with returns of $ 2,658 in year 1, $ 4,739 in...
You are offered an investment with returns of $ 2,658 in year 1, $ 4,739 in year 2, and $ 3,695 in year 3. The investment will cost you $ 8,438 today. If the appropriate Cost of Capital (quoted interest rate) is 12.0 %, what is the Profitability Index of the investment? Enter your answer to the nearest .01. Do not use commas in your answer.
Homework Answers
Profitability Index of the investment = Present value of the future cash flows / Initial Investment
Profitability Index of the investment = ($2,658/1.12 + $4,739/1.122 + $3,695/1.123) / $8,438
Profitability Index of the investment = 1.04
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