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A machine costs $10,000 and has a discount rate of 7.5%. Calculate the profitability index of...

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Finance

A machine costs $10,000 and has a discount rate of 7.5%.Calculate the profitability index of the project if the net presentvalue of cash inflows is $4,600 in year 1, $3,400 in year 2, $2,600in year 3, and $1,500 in year 4 when the machine is sold to salvagedealer.
A. 2.38
B. 2.21
C. 2.04
D. 1.21
E. 1.04


. A project costs $6,000 and has a discount rate of 7.5%. Calculatethe profitability index of the project that has cash flows of$5,200 in year 1 and $4,500 in year 2.
A. 1.62
B. 1.14
C. 1.80
D. 1.46
E. 1.14


A project costs $15,350 and has a discount rate of 8.5%. Calculatethe profitability index of the project that has cash flows of$3,500 in years 1 and 2, $4,000 in year 3, $3,200 in year 4 and$2,800 in year 5.
A. 0.88
B. 0.75
C. 0.24
D. 0.12
E. 1.28

Answer & Explanation Solved by verified expert
3.8 Ratings (425 Votes)

Ans 1 year Present value of cash flow
0 -10000
1 4600
2 3400
3 2600
4 1500
2100
Net present value = 2100
profitability index = =1+2100/10000
1.21
Answer = option D 1.21
Ans 2
i ii iii iv=ii*iii
year Cash flow PVIF @ 7.5% present value of cash flow
0 -6000     1.0000            (6,000)
1 5200     0.9302              4,837
2 4500     0.8653              3,894
NPV =              2,731
Therefore PI = 1+2731/6000
         1.46
Ans =option D          1.46
Ans 3
i ii iii iv=ii*iii
year Cash flow PVIF @ 8.5% present value of cash flow
0 -15350     1.0000          (15,350)
1 3500     0.9217              3,226
2 3500     0.8495              2,973
3 4000     0.7829              3,132
4 3200     0.7216              2,309
5 2800     0.6650              1,862
NPV =            (1,848)
PI = =1-1848/15230
         0.88
Ans =Option A=          0.88
Ans 1 year Present vlaue of cash flow
0 -10000
1 4600
2 3400
3 2600
4 1500
2100
Net present value = 2100
profitability index = =1+2100/10000
1.21
Answer = option D 1.21
Ans 2
i ii iii iv=ii*iii
year Cash flow PVIF @ 7.5% present value of cash flow
0 -6000     1.0000            (6,000)
1 5200     0.9302              4,837
2 4500     0.8653              3,894
NPV =              2,731
Therefore PI = 1+2731/6000
         1.46
Ans =option D          1.46
Ans 3
i ii iii iv=ii*iii
year Cash flow PVIF @ 8.5% present value of cash flow
0 -15350     1.0000          (15,350)
1 3500     0.9217              3,226
2 3500     0.8495              2,973
3 4000     0.7829              3,132
4 3200     0.7216              2,309
5 2800     0.6650              1,862
NPV =            (1,848)
PI = =1-1848/15230
         0.88
Ans =Option A=          0.88

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Transcribed Image Text

A machine costs $10,000 and has a discount rate of 7.5%.Calculate the profitability index of the project if the net presentvalue of cash inflows is $4,600 in year 1, $3,400 in year 2, $2,600in year 3, and $1,500 in year 4 when the machine is sold to salvagedealer.A. 2.38B. 2.21C. 2.04D. 1.21E. 1.04. A project costs $6,000 and has a discount rate of 7.5%. Calculatethe profitability index of the project that has cash flows of$5,200 in year 1 and $4,500 in year 2.A. 1.62B. 1.14C. 1.80D. 1.46E. 1.14A project costs $15,350 and has a discount rate of 8.5%. Calculatethe profitability index of the project that has cash flows of$3,500 in years 1 and 2, $4,000 in year 3, $3,200 in year 4 and$2,800 in year 5.A. 0.88B. 0.75C. 0.24D. 0.12E. 1.28

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