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find the profitablity index for the following series of cash flows assuming the company's cost of...

find the profitablity index for the following series of cash flows assuming the company's cost of capital is 8.03 percent. the initial outlay is 361661

Cost of Capital
Initial Outlay    486,488.00
Year 1 120,191.00
Year 2 161,639.00
Year 3 133,279.00
Year 4 130,393.00
Year 5 136,847.00
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Answer #1

Solution:

The formula for calculating profitability index is

Profitability index = PV of cash inflow / Initial outlay

If this index is more than 1 then it means that project is viable and has positive NPV

Since here two initial outlay is given so I have calculated for both the initial outlays

Profitibility index is = 1.504767

Profitability index is 1.118661

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