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[solution]: You are asked to analyze a proposed capital investment. The


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You are asked to analyze a proposed capital investment.
The project has a cost of $20,000, and the cost of capital is 10 percent.
The project?s expected net cash flows are as follows:

Year Expected Net Cash Flow
0 ($20,000)
1 9,500
2 6,000
3 6,000
4 4,000

What is the project?s profitability index?  (round to 2 decimals)


Answer:

 

Year

 

0

 

1

 

2

 

3

 

4

 


 

Expected Cash Flows

 

PV Factor@10% PV

 

-20000

 

1

 

9500

 

0.9090909091

 

6000

 

0.826446281

 

6000

 

0.7513148009

 

4000

 

0.6830134554

 

NPV

 

Profitability Index

 


 

-20000

 

8636.36

 

4958.68

 

4507.89...

 


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