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A project has an initial outlay of $3,451. It has a single payoff at the end...

A project has an initial outlay of $3,451. It has a single payoff at the end of year 6 of $8,155. What is the profitability index (PI) of the project, if the company’s cost of capital is 6.89 percent?

Round the answer to two decimal places.

how do i do this in excel? What formula do i use?

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Answer #1

PI=PV of Inflows/Initial Outflow

The cost of capital=6.89%

In excel this can be computed using the =NPV() function.

The formula used =NPV(6.89%,B3:B8)/-B2     We get PI=1.58

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