Question 1

Calculate the profitability index for the following cash flows if the discount rate is 9% and then if the discount rate is 15%. Yr 0 = -$15,000; Yr 1 = 7,000; Yr 2 = $6,000; Yr 3 = $6,000.

Question 2

A company is looking at a project that will require an initial investment of $1,400,000 and will provide a cash inflow of $90,000 for the first year growing at a rate of 4% per year, forever. If the company requires an 12% return, should the project be accepted?