Problem 8-13 Calculating Profitability Index [LO 6] What is the profitability in

Question

Problem 8-13 Calculating Profitability Index [LO 6]

What is the profitability index for the above set of cash flows if the relevant discount rate is 12 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)

What is the profitability index if the discount rate is 17 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)

What is the profitability index if the discount rate is 24 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)

Problem 8-17 NPV and Profitability Index [LO 4, 6]

Dahlia Manufacturing has the following two possible projects. The required return is 14 percent.

Explanation / Answer

Year Cash Inflow PV@12% PV@17% PV@24% 1 15500 13839.29 13247.86 12500.00 2 13400 10682.40 9788.88 8714.88 3 9800 6975.45 6118.83 5139.98 Total 31497.13 29155.58 26354.86 PI=Inflow/outflow 1.12 1.03 0.93 Inflow=28200 Year Cash Inflow-A PV-A@14% Cash Inflow-B PV-B@14% 1 14700 12894.74 13500 11842.11 2 13100 10080.02 38000 29239.77 3 15500 10462.06 11500 7762.172 4 11100 6572.09 36000 21314.89 Total PV 40008.91 70158.93 PI of A=40008.91/28700 1.39 PI of B=70158.93/52000 1.35 NPV of A=40008.91-28700 11308.91 NPV of B=70158.93-52000 18158.93

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