Question
*Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit; no hard keys. Problem 12-2: Profitability Index (PI) and
*Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit; no hard keys.
Problem 12-2: Profitability Index (PI) and Payback Period
A firm is considering a major expansion that will cost SAR 15,000,000.
Annual cash flows from the project are expected to be SAR 3,975,000 for 7 years.
The firm uses a discount rate of 8%. It accepts the project if the projects payback is less than 5 years.
Calculate the Profitability Index (PI) and the Payback Period of the project and determine if the project is acceptable based on PI and the Payback Period decision criteria.
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Fundamentals of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Alan Marcus
8th edition
77861620, 978-0077861629
