Question

Year 0 = Cash Flow -$16,700 Year 1 = Cash Flow $9,700 Year 2 = Cash Flow $7,800 Year 3 = Cash Flow $4,400

What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent? What is the profitability index for the set of cash flows if the relevant discount rate is 15 percent? What is the profitability index for the set of cash flows if the relevant discount rate is 22 percent?

Answer #1

Calculate the NPV when the discount rate is 10%

NPV = Sum of present value of cash flows - Year 0 Cash flow

NPV = 9700 / (1 + 10%) + 7800 / (1 + 10%)^2 + 4400 / (1 + 10%)^3 - 16700

= 1870.25

Profitability Index = (NPV + Year 0 Cash flow) / Year 0 Cash flow

= (1870.25 + 16700) / 16700

= 1.11

Calculate the NPV when the discount rate is 15%

NPV = Sum of present value of cash flows - Year 0 Cash flow

NPV = 9700 / (1 + 15%) + 7800 / (1 + 15%)^2 + 4400 / (1 + 15%)^3 - 16700

= 525.77

Profitability Index = (NPV + Year 0 Cash flow) / Year 0 Cash flow

= (525.77 + 16700) / 16700

= 1.03

Calculate the NPV when the discount rate is 22%

NPV = Sum of present value of cash flows - Year 0 Cash flow

NPV = 9700 / (1 + 22%) + 7800 / (1 + 22%)^2 + 4400 / (1 + 22%)^3 - 16700

= (1085.54)

Profitability Index = (NPV + Year 0 Cash flow) / Year 0 Cash flow

= (-1085.54 + 16700) / 16700

= 0.94

What is the profitability index for the following set of cash
flows if the relevant discount rate is 10 percent? What if the
discount rate is 15 percent? If it is 22 percent? Year Cash
Flow
0 -16,700
1-9,700
2 -7,800
3 - 4,300

Year
Cash Flow
0
–$
18,500
1
10,800
2
9,700
3
6,200
What is the profitability index for the set of cash flows if the
relevant discount rate is 9 percent? (Do not round
intermediate calculations and round your answer to 3 decimal
places, e.g., 32.161.)
Profitability index
What is the profitability index for the set of cash flows if the
relevant discount rate is 14 percent? (Do not round
intermediate calculations and round your answer to...

Year
Cash Flow
0
−$9,600
1
4,800
2
3,100
3
4,400
a. What is the profitability index for the
cash flows if the relevant discount rate is 11 percent?
b. What is the profitability index for the
cash flows if the relevant discount rate is 15 percent?
c. What is the profitability index for the
cash flows if the relevant discount rate is 24 percent?

Year
Cash Flow
0
−$9,700
1
3,800
2
4,600
3
5,000
Required :
(a)
What is the profitability index for the cashflows if the
relevant discount rate is 11 percent?
(b)
What is the profitability index for the cashflows if the
relevant discount rate is 16 percent?
(c)
What is the profitability index for the cashflows if the
relevant discount rate is 21 percent?

Year Cash Flow
0 ?$9,700
1 3,700
2 2,400
3 4,200
Required :
(a) What is the profitability index for the cashflows if the
relevant discount rate is 7 percent?
(b) What is the profitability index for the cashflows if the
relevant discount rate is 17 percent?
(c) What is the profitability index for the cashflows if the
relevant discount rate is 25 percent?

Year
Cash Flow
0
−$7,800
1
4,300
2
5,200
3
3,200
a. What is the profitability index for the
cash flows if the relevant discount rate is 8 percent?
b. What is the profitability index for the
cash flows if the relevant discount rate is 16 percent?
c. What is the profitability index for the
cash flows if the relevant discount rate is 25 percent?

Year
Cash Flow
0
−$8,400
1
5,600
2
3,600
3
5,100
a. What is the profitability index for the cash
flows if the relevant discount rate is 9 percent?
b. What is the profitability index for the cash
flows if the relevant discount rate is 15 percent?
c. What is the profitability index for the cash
flows if the relevant discount rate is 22 percent?

Year
Cash Flow
0
−$7,600
1
3,200
2
4,300
3
2,400
a. What is the profitability index for the cash
flows if the relevant discount rate is 11 percent?
b. What is the profitability index for the cash
flows if the relevant discount rate is 16 percent?
c. What is the profitability index for the cash
flows if the relevant discount rate is 22 percent?

For the following set of cash flows,
Year
Cash Flow
0
–$9,700
1
4,100
2
3,400
3
4,400
a. What is the NPV at a discount rate of 0 percent?
2,200.00
$2,266.00
$2,310.00
$2,090.00
$2,134.00
b. What is the NPV at a discount rate of 15 percent?
$-670.82
$-690.95
$-704.36
$-637.28
$-650.70
c. What is the NPV at a discount rate of 23 percent?
$-1,754.84
$-1,807.48
$-1,842.58
$-1,667.10
$-1,702.19
d. What is...

Year
Cash Flow
0
−$8,400
1
3,900
2
3,300
3
5,800
a. What is the profitability index for the
cash flows if the relevant discount rate is 8 percent?
b. What is the profitability index for the
cash flows if the relevant discount rate is 18 percent?
c. What is the profitability index for the
cash flows if the relevant discount rate is 23 percent?

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