Consider the following cash flows: Year Cash Flow 0 ......... $28,000 1 .........15,700 2 .........13,200 4 .........

Question:

Consider the following cash flows:

Year Cash Flow

0 ......... –$28,000

1 .........15,700

2 .........13,200

4 ......... 9,600

What is the profitability index for the above set of cash flows if the relevant discount rate is 10 percent?

What is the profitability index if the discount rate is 15 percent?

What is the profitability index if the discount rate is 22 percent?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...