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The black horse is currently considering a project that will produce cash inflows of $12,000 a year for three years followed by $6,500 in year 4. The cost of the project is $38,000. What is the profitability index if the discount rate is 7 percent?.

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tutorconsortium113

The profitability index (PI) quantifies the allure of a project or investment.The present value of anticipated future cash flows is divided by the project's initial investment to determine the PI.

What is the profitability index if the discount rate is 7 percent?.

There are two different calculations that you can use to determine the profitability index.

Profitability Index = Present Value of Future Cash Flows / Initial Investment. Profitability Index = (Net Present Value + Initial Investment) / Initial Investment.The profitability index if the discount rate was 7 percent is 0.96.To calculate the profitability index, the given equation can be used.

profitability index = (NPV + initial investment) ÷ initial investmentThe profitability index, is the financial calculation to input the initial outflow (investment) of $38,000 and the four cash inflows ($12,000 in each of Years 1, 2, and 3, and $6,500 in Year 4). Then the NPV calculation can be used to find the NVP with the 7% discount rate for the project of -$1,549

profitability index = (NPV + initial investment) ÷ initial investment

(-$1,549 + $38,000) ÷ $38,000 = $0.96

To learn more about profitability index refer

https://brainly.com/question/28109021

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