Calculate the profitability index for a project with the following cash flows. Assume a cost of capital of 10% $\begin{array}{ll}
\text { Year } & \text { Cash Flow } \
0 & (15,000) \
1 & 5,000 \
2 & 8,000 \
3 & 10,000
\end{array}$

Question

Quizplus · Accepted Answer

The profitability index (PI) is calculated as the present value of future cash flows divided by the initial investment. The present value of cash flows at 10% discount rate is: Year 1: 5,000 / (1+0.10)^1 = 4,545.45, Year 2: 8,000 / (1+0.10)^2 = 6,611.57, Year 3: 10,000 / (1+0.10)^3 = 7,513.15. Total PV = 18,670.17. PI = 18,670.17 / 15,000 = 1.24.

Calculate the Profitability Index for a Project with the Following Year Cash Flow 0(15,000)15,00028,000310,000\begin{array}{ll}\text { Year } & \text { Cash Flow } \\0 & (15,000) \\1 & 5,000 \\2 & 8,000 \\3 & 10,000\end{array} Year 0123​ Cash Flow (15,000)5,0008,00010,000​

Calculate the Profitability Index for a Project with the Following $\begin{array}{ll}\text { Year } & \text { Cash Flow } \\0 & (15,000) \\1 & 5,000 \\2 & 8,000 \\3 & 10,000\end{array}$