Question

Year Cash Flow 0 −\$7,700           1 4,200           2 4,300           3 4,500      &nb

 Year Cash Flow 0 −\$7,700 1 4,200 2 4,300 3 4,500

 Required :
 (a) What is the profitability index for the cash flows if the relevant discount rate is 7 percent?
 (Click to select)\$1.475\$1.401\$1.43\$1.548\$1.519

 (b) What is the profitability index for the cashflows if the relevant discount rate is 18 percent? (Click to select)\$1.182\$1.219\$1.158\$1.28\$1.256

 (c) What is the profitability index for the cashflows if the relevant discount rate is 21 percent? (Click to select)1.1041.1621.1271.221.197

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

=4200/1.07+4300/1.07^2+4500/1.07^3

=11354.3606

PI=Present value of inflows/Present value of outflows

=11354.3606/7700

=1.475(Approx).

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

=4200/1.18+4300/1.18^2+4500/1.18^3

=9386.35401

PI=Present value of inflows/Present value of outflows

=9386.35401/7700

=1.219(Approx).

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

=4200/1.21+4300/1.21^2+4500/1.21^3

=8948.16492

PI=Present value of inflows/Present value of outflows

=8948.16492/7700

=1.162(Approx).