question archive A project has an initial outlay of $1,932
A project has an initial outlay of $1,932
Subject:AccountingPrice:2.86 Bought3
A project has an initial outlay of $1,932. It has a single payoff at the end of year 2 of $6,943. What is the profitability index (PI) of the project, if the company's cost of capital is 5.72 percent?
Round the answer to two decimal places.
Your Answer:
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Profitability Index = 3.22
Step-by-step explanation
Profitability index = Present value of future cash flows / Initial Investment
Initial Investment = $1,932
Present value of future cash flows = Cash flow at the end of Year 2 / ( 1 + interest rate)^2
= $6,943 / ( 1 + 0.0572)^2
= $6,943 / 1.117672
= $6,212.02
Profitability Index = $6,212.02 / $1,932
= 3.22
