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Year WN-O Cash Flow -$7,700 4,000 5,900 2,100 a. What is the profitability index for the cash flows if the relevant discountc. What is the profitability index for the cash flows if the relevant discount rate is 24 percent?A firm evaluates all of its projects by using the NPV decision rule. Year WN=0 Cash Flow -$29,000 20,000 16,000 6,000 a. At a

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Answer #1

Ans 1) a. 1.35

b. 1.14

c. 1.06

Year Project Cash Flows (i) DF@ 8% DF@ 8% (ii) PV of Project ( (i) * (ii) ) DF@ 19% (iii) PV of Project ( (i) * (iii) ) DF@ 24% (iv) PV of Project A ( (i) * (iv) )
1 4000 1/((1+8%)^1) 0.926                       3,703.70 0.840            3,361.34 0.806        3,225.81
2 5900 1/((1+8%)^2) 0.857                       5,058.30 0.706            4,166.37 0.650        3,837.15
3 2100 1/((1+8%)^3) 0.794                       1,667.05 0.593            1,246.17 0.524        1,101.42
NPV                     10,429.05 NPV            8,773.89 NPV        8,164.38
Total of PV of Cash Inflows 10429.05 8773.89 8164.38
Cash Outflows 7700 7700 7700
Profitability Index = 1.35 1.14 1.06
Present value of cash Inflow / Initial Investment (Cash Outflows) (10429.05 / 7700) (8773.89/7700) (8164.38/7700)
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