What is the profitability index for the above set of cash flows if the relevant
ID: 2650631 • Letter: W
Question
What is the profitability index for the above set of cash flows if the relevant discount rate is 8 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 13 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 20 percent? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).)
Consider the following cash flows:
Explanation / Answer
Requirement 1: What is the profitability index for the above set of cash flows if the relevant discount rate is 8 percent? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)
Profitability index = PV of Cash Inflow/PV of Cash Outflow
PV of Cash Inflow = 13800/1.08 + 15100/1.08^2 + 11500/1.08^3
PV of Cash Inflow = $ 34852.66
PV of Cash Outflow = $ 29900
Profitability index = 34852.66/29900
Profitability index = 1.166
Answer
Profitability index 1.166
Requirement 2:
What is the profitability index if the discount rate is 13 percent? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).)
Profitability index = PV of Cash Inflow/PV of Cash Outflow
PV of Cash Inflow = 13800/1.13 + 15100/1.13^2 + 11500/1.13^3
PV of Cash Inflow = $ 32007.98
PV of Cash Outflow = $ 29900
Profitability index = 32007.98/29900
Profitability index = 1.071
Answer
Profitability index 1.071
Requirement 3:
What is the profitability index if the discount rate is 20 percent? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).)
Profitability index = PV of Cash Inflow/PV of Cash Outflow
PV of Cash Inflow = 13800/1.20 + 15100/1.20^2 + 11500/1.20^3
PV of Cash Inflow = $ 28641.20
PV of Cash Outflow = $ 29900
Profitability index = 28641.20/29900
Profitability index = 0.958
Answer
Profitability index 0.958
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