Question

initial cash outlay of a project is rs. 50000 and its generated cash inflows of rs 20000,rs. 15000,rs. 25000,rs.10000 in 4 year . using present value index method appreciate profitability of the proposed investment assuming 10% rate of discount​

Answer 1

Answer:

Hence, the project should be accepted.

Explanation:

Given: Interest rate=10%

Profitability index could be computed as:

=Present value of cash outflows/Initial cash outlay

$=[20000(0.909)+15000(0.826)+25000(0.751)+10000(0.683)]/50000\\=[18180+12390+18775+6830}/50000\\=56175/50000=1.1235$

The project could be accepted as profitability index is higher than 1.