Assume there is a project where the firm will initially invest $60,000 to receive $14,000 at Year 1, $15,000 at Year 2, $16,000 at Year 3, $14,000 at Year 4, $15,500 at Year 5, and $16,500 at Year 6. If the interest/discount rate is 10.50%, what is the profitability index?

1.08

Same facts as above: How would your answer change if the cash inflows increase by 10% and the rate changes to 11.3%?

HINT: Note that cash inflows increased by 10% (that is, outflow/initial expenditure remained the same).

A. 1.31

B. 1.08

C. 1.16

D. 1.21