Question

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.

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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