Roxy is considering a new cat food factory with the following cash flows,if the discount rate is 10% what is the PI?

Question

Quizplus · Accepted Answer

To calculate the PI, we need to find out the present value of cash inflows and outflows. Using a financial calculator or Excel, we get:

PV of Cash inflows = 6,500+6,500+6,500+6,500+6,500+6,500+6,500+6,500+6,500+6,500 = 65,000
PV of Cash outflow = 50,000

PI = (PV of Cash inflows / PV of Cash outflow) = 65,000 / 50,000 = 1.3

Since the PI is greater than 1, the project is acceptable. Therefore, the best choice is A, with a PI of 0.960.

Roxy Is Considering a New Cat Food Factory with the Following