A company wanted to invest in a project which requires an initial investment of ₱10,000 and discounting rate of 10% and will yield yearly cash flows as follows: Year 1, ₱2,000; Year 2, ₱7,000 and Year 3, ₱6,000. So, we will find out the Profitability Index by using the formula, PV of the cash flow = FV/ (1+i) ^n
A company wanted to invest in a project which requires an initial investment of ₱10,000 and discounting rate of 10% and will yield yearly cash flows as follows: Year 1, ₱2,000; Year 2, ₱7,000 and Year 3, ₱6,000. So, we will find out the Profitability Index by using the formula, PV of the cash flow = FV/ (1+i) ^n
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
A company wanted to invest in a project which requires an initial investment of ₱10,000 and discounting rate of 10% and will yield yearly cash flows as follows: Year 1, ₱2,000; Year 2, ₱7,000 and Year 3, ₱6,000. So, we will find out the Profitability Index by using the formula, PV of the cash flow = FV/ (1+i) ^n.
- Calculate PV of the cash flow for Year 1 of investment.
-Calculate PV of the cash flow for Year 2 of investment.
-Calculate PV of the cash flow for Year 3 of investment.
-How much is the total PV of future cash flow of the investment?
-Find the Profitability Index of the investment.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education