the initial cash outlay of a project is race 50,000 andvalue and profitability index of opposite investment assuming 10 percent rate of discount is generate cash flow of 20000 Rs 15000 Rs 25000 Rs 10000 in first four years find out the net present
Answers
Answer:
Explanation:
Calculation of present value and profitability index.
Year Cash Inflows Present value Factor Present value
@10% Rs
1. 20,000 .909 18180
2. 15000 .826 12390
3. 25000 .751 18775
4. 10000 .683 6830
Total present value 56175
Less: Initial outlay 50000
Net present value 6175
Profitability Index = Present value / initial cash outlay
= 56175/50000 = 1.1235
Profitabillity index is higher than 1, So the can be accepted
NPI = NPV/ Initial cash outlay
= 6.175/50000
= .1235
NPI = 1.1235 - 1 = 0.1235