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Year Cash Flows 0 -18265 1 11583 2 9838 3 6164 What is the profitability index...

Year Cash Flows 0 -18265 1 11583 2 9838 3 6164 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 final answer to 3 decimal places. (e.g., 32.161))

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Answer #1

PV of future cash flows is calculated using a financial calculator by inputting the below:

  • Press the CF button.
  • CF0= -$18,265. . It is entered with a negative sign since it is a cash outflow.
  • Cash flow for each year should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 9%.
  • Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The present value of cash flows is $15,443.23.

Profitability Index= $15,443.23/$18,265= 0.846.

Therefore, the profitability index is 0.846.

In case of any query, kindly comment on the solution.

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