A project has the following cash flows for years 1 through 3 respectively: 1,518, 1,850, 1,321....
A project has the following cash flows for years 1 through 3 respectively: 1,518, 1,850, 1,321. Using a discount rate of 8.9 percent, it has been determined that the profitability index is 0.91. What must the project's initial cost be? (Enter absolute value of the initial cost.)
Homework Answers
profitability index = Present Value of cash Inflows / Present Value of cash Outflows
0.91= $ 3,976.78 / Present Value of cash Outflows
or Present Value of cash Outflows = $ 3,976.78 / 0.91
= $ 4,370.087912
= $ 4,370
Hence the correct answer is $ 4,370
Note :
Present Value of cash Inflows =
= $ 1,518 * 1/(1.089) ^ 1 + $ 1,850 * 1/(1.089) ^ 2 + $ 1,321 * 1/(1.089) ^ 3
= $ 3,976.78
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