Question

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? |

Answer #1

The profitability index is defined as the PV of the cash inflows divided by the PV of the cash outflows.

(a) The equation for the profitability index at a required return of 11 percent is:

PI = ($3,800 / 1.11 + $4,600 / 1.11^{2} + $5,000 /
1.11^{3}) / $9,700 = 1.115

(b) The equation for the profitability index at a required return of 16 percent is:

PI = ($3,800 / 1.16 + $4,600 / 1.16^{2} + $5,000 /
1.16^{3}) / $9,700 = 1.020

(c) The equation for the profitability index at a required return of 21 percent is:

PI = ($3,800 / 1.21 + $4,600 / 1.21^{2} + $5,000 /
1.21^{3}) / $9,700 = 0.939

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
−$7,700
1
4,200
2
4,300
3
4,500
Required :
(a)
What is the profitability index for the cash flows if the
relevant discount rate is 7 percent?
(Click to select)$1.475$1.401$1.43$1.548$1.519
(b)
What is the profitability index for the cashflows if the
relevant discount rate is 18 percent?
(Click to select)$1.182$1.219$1.158$1.28$1.256
(c)
What is the profitability index for the cashflows if the
relevant discount rate is 21 percent?
(Click to...

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...

Year
Cash Flow
0
−$7,200
1
5,300
2
5,700
3
5,300
Required :
(a)
What is the profitability index for the cashflows if the
relevant discount rate is 9 percent?
(Click to select)$2.006$1.967$1.853$1.91$1.815
(b)
What is the profitability index for the cashflows if the
relevant discount rate is 17 percent?
(Click to select)$1.617$1.584$1.717$1.75$1.667
(c)
What is the profitability index for the cashflows 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?

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
−$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
−$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
−$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
−$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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