A project has an initial cost of $65,850, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 10%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.
| Profitability index = PV of cash flow / Intial investment | |||||
| initial cost | 65,850 | ||||
| Computation of present value of expected cash flow | |||||
| i | ii | iii=i*ii | |||
| Year | Cash flow | PVIF @ 10% | present value | ||
| 1 | 12,000 | 0.909091 | 10,909.09 | ||
| 2 | 12,000 | 0.826446 | 9,917.36 | ||
| 3 | 12,000 | 0.751315 | 9,015.78 | ||
| 4 | 12,000 | 0.683013 | 8,196.16 | ||
| 5 | 12,000 | 0.620921 | 7,451.06 | ||
| 6 | 12,000 | 0.564474 | 6,773.69 | ||
| 7 | 12,000 | 0.513158 | 6,157.90 | ||
| 8 | 12,000 | 0.466507 | 5,598.09 | ||
| 64,019.11 | |||||
| Therefore PI = 64019.11/65850 | 0.97 | ||||
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