Good Morning Food, Inc. is using the profitability index (P) when evaluating pro

Question

Good Morning Food, Inc. is using the profitability index (P) when evaluating projects. You have to find the PI for the company's project, assuming the company's cost of capital is 7.76 percent The initial outlay for the project is $361,671. The project will produce the following end-of-the-year after-tax cash inflows of Year 1: $170,782 Year 2: $113,062 Year 3: $34.90s Year 4: $463,s13 Round the anawer to two decimal places Your Answer Answer Save Page 3 of 4 Next Page Save All Responses Go to Submit Quiz

Explanation / Answer

Profitability index = Present value of cash inflows / initial investment A) Present value of Cash inflows = Years Cash flows PV Factors @ 7.76% Present value of cash flows 1 170782 0.92798812 158483.7 2 113062 0.86116195 97364.69 3 34905 0.79914806 27894.26 4 463513 0.74159991 343741.2 627483.8 B)   Initial investment 361671 PI = A/B = 627483.8/361671 = 1.734958 Please provide feedback……... thanks in advance……… :-)

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