Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. suppose a company has proposed a new 4-year projec

Suppose a company has proposed a new 4-year project. The project has an initial outlay of...

Free

80.2K

Verified Solution

Question

Finance

Suppose a company has proposed a new 4-year project. The projecthas an initial outlay of $17,000 and has expected cash flows of$8,000 in year 1, $9,000 in year 2, $10,000 in year 3, and $14,000in year 4. The required rate of return is 15% for projects at thiscompany. What is the profitability index for this project? (Answerto the nearest hundredth, e.g. 1.23)

Answer & Explanation Solved by verified expert
4.2 Ratings (548 Votes)

Ans 1.67

Year Project Cash Flows (i) DF@ 15% DF@ 15% (ii) PV of Project A ( (i) * (ii) )
1 8000 1/((1+15%)^1) 0.870                       6,956.52
2 9000 1/((1+15%)^2) 0.756                       6,805.29
3 10000 1/((1+15%)^3) 0.658                       6,575.16
4 14000 1/((1+15%)^4) 0.572                       8,004.55
NPV                     28,341.52
Total of PV of Cash Inflows 28341.52
Cash Outflows 17000
Profitability Index = 1.67
Present value of cash Inflow / Initial Investment (Cash Outflows) (28341.52 / 17000)

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Suppose a company has proposed a new 4-year project. The projecthas an initial outlay of $17,000 and has expected cash flows of$8,000 in year 1, $9,000 in year 2, $10,000 in year 3, and $14,000in year 4. The required rate of return is 15% for projects at thiscompany. What is the profitability index for this project? (Answerto the nearest hundredth, e.g. 1.23)

Other questions asked by students

Q

You are considering the following two mutually exclusive projects. Project A Project B Year 0 -$10,000...

Finance
Q

According to the Harvard Business Review, The 8 Types of Company Culture. Explain two factors in...

General Management
Q

The front of your body is known as inferior or caudal O posterior or dorsal...

Biology
Q

A proton and an a particle move in circular paths in a transverse magnetic field...

Physics
Q

Which statement is going to prove the two lines below are parallel 4 2 5...

Geometry
Q

Sujito Electronix makes headphones for 22 and sells them for 32 Sujito has sold at...

Basic Math
Q

1. record sale of goods for january 102. record the cost of sale for january...

Accounting
Q

What is the due date of a $1300, five-month note with interest at 7% dated...

Accounting
Q

On November 1st, 20X8, there is an opening balance of finished goods in the amount...

Accounting
Q

Alison and Chuck Renny began operations of their furniture repair shop (Lazy Sofa Furniture, Inc.)...

Accounting
Q

PA6-2 Analyzing Break-Even Point, Setting Target Profit, Degree of Operating Leverage [LO 6-1, 6-2, 6-5]...

Accounting
Q

Use the following information to answer questions 3235 Your CFO gave you the following information...

Accounting