Question

10. What is the profitability index for an investment with the following cash flows given a 145 perc required return? (10) Year WNHO Cash Flow -$46,500 $12,200 $38,400 $11,300

Answer 1

Solution :

The Profitability Index of the Investment = 1.0209

= 1.02 ( when rounded off to two decimal places )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

12.12.2019 - Microsoft Excel ES HOME ДА в FILE INSERT FORMULAS DATA REVIEW VIEW PAGE LAYOUT с H Statement showing calculation of Profitability Index of the Investment Sl.No. Particulars Amount Year PV Factor @ 14.5 % Discounted Cash Flows (1) (2) (3) (4) = (1) * (3) 1 Cash outflow Year o$ 46,500.00 ol 1.0000 $ 46,500.0000 Total of Cash Outflows (A) 46,500.0000 3 Cash Inflow Year 1 $ 12,200.00 1 0.8734 $ 10,655.0218 4 Cash Inflow Year 2 $ 38,400.00 2 0.7628 $ 29,290.0593 5 Cash Inflow Year 3 $ 11,300.00 3 0.6662 $ 7,527.6945 Total of discounted cash Inflows (B) 47,472.7756 Profitability Index - (B) / (A) 1.0209 8Profitability Index ( when rounded off to two decimal places) 1.02