Question

Compute the Pl static for your firm's new project if the appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal laces.) Your firm's project Time 0 1 2 4 6 Cash Flow -640 60 580 780 780 380 780 Should the project be accepted or rejected? Multiple Choice Accepted Rejected

Answer 1

So, the project should be Accepted

Time Cash Flows А Present Value Factor Present Value B = (1/1.11)^n C = A*B 60.00 580.00 780.00 780.00 380.00 780.00 0.9009 0.8116 0.7312 0.6587 0.5935 0.5346 54.05 470.74 570.33 513.81 225.51 417.02 Present value of cash inflows = 2,251.47 Profitability Index = Present value of cash flows / Initial investment Profitability Index = $2,251.47/ $640 Profitability Index = 3.52 Since, the profitability index is greater than '1' the project should be ACCEPTED

PI = 3.52