Question

# Year Cash Flow 0 −\$9,400           1 4,000           2 5,700           3 3,300      &nb

 Year Cash Flow 0 −\$9,400 1 4,000 2 5,700 3 3,300

 a. What is the profitability index for the cash flows if the relevant discount rate is 8 percent? 1.228 1.252 1.133 1.157 1.193

 b. What is the profitability index for the cash flows if the relevant discount rate is 19 percent? 0.994 1.024 1.044 0.944 0.964

 c. What is the profitability index for the cash flows if the relevant discount rate is 24 percent? 0.922 0.949 0.968 0.876 0.894

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=4000/1.08+5700/1.08^2+3300/1.08^3

=11210.1814

PI=Present value of inflows/Present value of outflows

=11210.1814/9400

=1.193(Approx)

b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=4000/1.19+5700/1.19^2+3300/1.19^3

=9344.75619

PI=Present value of inflows/Present value of outflows

=9344.75619/9400

=0.994(Approx)

c.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=4000/1.24+5700/1.24^2+3300/1.24^3

=8663.69038

PI=Present value of inflows/Present value of outflows

=8663.69038/9400

=0.922(Approx)

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