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POD has a project with the following cash flows: Year/ Cash Flows 0/ −$275,000 1 /145,800 2/163,300 3 /128,400 The required return is 8.6 percent. What is the profitability index for this project? a) .737 b) 1.243 c) 1.130 d) 1.356 e) .922
POD has a project with the following cash flows: Year/ Cash Flows 0/ −$275,000 1 /145,800 2/163,300 3 /128,400 The required return is 8.6 percent. What is the profitability index for this project? a) .737 b) 1.243 c) 1.130 d) 1.356 e) .922
Final answer:The Profitability Index is calculated by dividing the present value of future cash flows (discounted by the required return) by the initial investment. For this case, after performing these calculations, the Profitability Index is approximately 1.130, matching option c).Explanation:TheProfitability Index(PI) is calculated by dividing the present value of future cash flows by the initial investment. In this case, the initial investment is $275,000 and the future cash flows are $145,800 in year one, $163,300 in year two, and $128,400 in year three. The required return is 8.6 percent. We discount these future cash flows by the required return each year, sum them up, and then divide by the initial investment.Calculationsare as follows:Year 1: $145,800/ (1+0.086)^1Year 2: $163,300 / (1+0.086)^2Year 3: $128,400 / (1+0.086)^3Sum these up and then divide by $275,000. The answer is approximately 1.130, which matches option c).Learn more about Profitability Index here:brainly.com/question/33442228#SPJ11...