Question
Asked Dec 1, 2019
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Compute the PI statistic for Project Q if the appropriate cost of capital is 13 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

 

Project Q          
Time: 0 1 2 3 4
Cash flow: –$12,400 $4,050 $4,880 $4,880 $2,850
 

PI ________ ?

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Expert Answer

Step 1

Calculation of Profitability Index (PI):

The profitability index (PI) is 1.01.

Excel Spreadsheet:

...
A
В
C
D
Cash Flows FVIF@ 13% | PV of Cash Flows
$3,584.07
$3,821.76
$3,382.08
$1,747.96
$12,535.87
$12,400
Year
2
1
$4,050
1.1300
3
2
$4,880
$4,880
$2,850
Total PV of Cash Flows
Initial Investment
Profitability Index
1.2769
4
1.4429
5
4
1.6305
6
7
1.01
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A В C D Cash Flows FVIF@ 13% | PV of Cash Flows $3,584.07 $3,821.76 $3,382.08 $1,747.96 $12,535.87 $12,400 Year 2 1 $4,050 1.1300 3 2 $4,880 $4,880 $2,850 Total PV of Cash Flows Initial Investment Profitability Index 1.2769 4 1.4429 5 4 1.6305 6 7 1.01

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