Project requires an initial investment of $ 1792335 and the appropriate discount rate for this project is 0.12. Estimated Profitability index: • $ 145654 in Year 1 • $ 238344 in Year 2 • $ 304626 in Year 3 Answer:
Project requires an initial investment of $ 1792335 and the appropriate discount rate for this project is 0.12. Estimated Profitability index: • $ 145654 in Year 1 • $ 238344 in Year 2 • $ 304626 in Year 3 Answer:
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
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Transcribed Image Text:Project requires an initial investment of $ 1792335 and the appropriate discount rate for this project is
0.12. Estimated Profitability index:
• $ 145654 in Year 1
• $ 238344 in Year 2
• $ 304626 in Year 3
Answer:
Expert Solution
Step 1
Profitability index is a ratio of present value of cash inflows and initial investment. cash inflows are after-tax.
Profitability index = present value of cash inflows/initial investment
present value of cash inflows = Year 1 cash inflow/(1+discount rate) + Year 2 cash inflow/(1+discount rate)2 + Year 3 cash inflow/(1+discount rate)3
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