Question

A project is expected to provide cash flows of $12,300, $12,700, $15,800, and $10,300 over the next four years, respectively. At a required return of 8.6 percent, the project has a profitability index of .887. For this to be true, what is the project's cost at Time 0?

rev: 11_04_2019_QC_CS-189102

Multiple Choice

• Insufficient information.

• $31,541

• $37,108

• $47,164

• $43,234

Answer 1

Year	Cash Flow	PV Factor	PV Of Cash Flow
a	b	c=1/1.086^a	d=b*c
1	$ 12,300	0.92081	$           11,325.97
2	$ 12,700	0.847892	$           10,768.22
3	$ 15,800	0.780747	$           12,335.81
4	$ 10,300	0.71892	$             7,404.88
Present value of cash inflow			$           41,834.88
Profitability index = Present value of cash inflow/ initial investment
0.887 =$41834.88/ Initial Investment
Initial Investment =$47164