contestada

your firm has a potential project that will cost $5,000 now to begin. the project will then generate after-tax cash flows of $900 at the end of the next three years and then $1400 per year for the three years after that. if the discount rate is 8% then what is the pi? answer in % format with 2 number after the decimal point

Respuesta :

The profitability index of the project is 103.67%.

What is the profitability index?

Profitability index is a capital budgeting method that is used to determine the profitability of a project. Profitability index is the ratio of the net present value of the project and the initial cost of the investment.

Profitability index = 1 + (NPV / Initial investment)

NPV = -5000 + 900 / 1.08 + 900 / 1.08^2 + 900 / 1.08^3 + 1400 / 1.08^4 + 1400 / 1.08^5 + 1400 / 1.08^6 = $183.48

Profitability index = 1 + (183.48 / 5000) = 1.0367 = 103.67%

To learn more about profitability index, please check: https://brainly.com/question/18994477

#SPJ1