A project will cost $1.8 million. The company uses a 12% discount rate as a threshold for

Question:

A project will cost $1.8 million. The company uses a 12% discount rate as a threshold for accepting capital projects. It is expected to have a 5 year life and return the following:

Year 1 $350,000

Year 2 $500,000

Year 3 $600,000

Year 4 $800,000

Year 5 $500,000

Calculate the Profitability Index

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...