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Question

5) Consider the following cash flows: [ year 0 -$29,900 ; year 1 $13,800 ; year 2 $15,100 ; year 3 $11,500]. A)

What is the profitability index for the cash flows if the relevant discount rate is 8%? B) What is the profitability index if the discount rate is 13%? C) What is the profitability index if the discount rate is 20%? Please use excel and explain conclusion. 

Top Answer

a)Profitability Index @ DF 8% = 1.17 b)Profitability Index @ DF 13% = 1.07 c)Profitability Index @ DF 20% = 0.96 If... View the full answer

Profitability Index.jpg

Ans a
DCF=Cashflow
Year
Cash flows
DF @ 8%
*DF
-29900
1
29,900.00
13800
0.925925926
12,777.78
15100
0.85733882
12,945.82
3
11500
0.793832241
9,129.07
Initial Investment
29,900.00
PV of Cash...

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