Company Rapid Growth is considering the following project: Year 0 1 2 3 4 5 Cash Flows -$87800 $10800 $26000 $33300 $35000 $53400 What's the profitability index of the project, assuming 8.66% discount rate?
Company Rapid Growth is considering the following project: Year 0 1 2 3 4 5 Cash Flows -$87800 $10800 $26000 $33300 $35000 $53400 What's the profitability index of the project, assuming 8.66% discount rate?
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
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Question
Company Rapid Growth is considering the following project:
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash Flows | -$87800 | $10800 | $26000 | $33300 | $35000 | $53400 |
What's the profitability index of the project, assuming 8.66% discount rate?
Expert Solution
Step 1
Profitability Index: It is the tool that measures the relationship between PV(Present Value) of cash inflows and cash outflow. It helps in ranking the projects as per their profitability index. Project is accepted when the Profitability index is more than 1 and reject when it is less than 1.
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