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A project has an initial cost of $47,150, expected net cash inflows of $12,000 per year...

A project has an initial cost of $47,150, expected net cash inflows of $12,000 per year for 7 years, and a cost of capital of 14%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.

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Answer #1

Given,

Initial cost = $47150

Annual cash inflows (A) = $12000

No. of years (n) = 7 years

Cost of capital (r) = 14% or 0.14

Solution :-

Present value of cash inflows = A/r x [1 - (1 + r)-n]

= $12000/0.14 x [1 - (1 + 0.14)-7]

= $85714.2857142 x [1 - (1.14)-7]

= $85714.2857142 x [1 - 0.3996373225]

= $85714.2857142 x 0.6003626775 = $51459.6580713

Project's PI = Present value of cash inflows Initial cost

= $51459.6580713 $47150 = 1.09

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