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You are offered an investment with returns of $ 1,752 in year 1, $ 4,823 in...

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Finance

You are offered an investment with returns of $ 1,752 in year 1,$ 4,823 in year 2, and $ 5,748 in year 3. The investment will costyou $ 6,757 today. If the appropriate Cost of Capital (quotedinterest rate) is 7.9 %, what is the Profitability Index of theinvestment? Enter your answer to the nearest .01. Do not use the $sign or commas in your answer. If the NPV is negative, use the -sign.

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3.8 Ratings (710 Votes)

Ans Profitability Index of the investment = 1.53

Year Project Cash Flows (i) DF@ 7.9% DF@ 7.9% (ii) PV of Project A ( (i) * (ii) )
1 1752 1/((1+7.9%)^1) 0.927                       1,623.73
2 4823 1/((1+7.9%)^2) 0.859                       4,142.61
3 5748 1/((1+7.9%)^3) 0.796                       4,575.65
PV                     10,341.98
Total of PV of Cash Inflows 10341.98
Cash Outflows 6757
Profitability Index = 1.53
Present value of cash Inflow / Initial Investment (Cash Outflows) (10341.98/ 6757)

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You are offered an investment with returns of $ 1,752 in year 1,$ 4,823 in year 2, and $ 5,748 in year 3. The investment will costyou $ 6,757 today. If the appropriate Cost of Capital (quotedinterest rate) is 7.9 %, what is the Profitability Index of theinvestment? Enter your answer to the nearest .01. Do not use the $sign or commas in your answer. If the NPV is negative, use the -sign.

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