Question

# Year Cash Flows 0 -67334 1 30908 2 31393 3 31036 What is the profitability index...

Year Cash Flows 0 -67334 1 30908 2 31393 3 31036 What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent? (Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161))

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

• Press the CF button.
• CF0= -\$67,334. . 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 10%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The present value of cash flows is \$10,026.62.

Profitability Index= \$10,026.62/\$67,334= 0.15.

Therefore, the profitability index is 0.149.

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

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