A company wanted to invest in a project which requires an initial investment of ₱10,000 and discounting rate of 10% and will yield yearly cash flows as follows: Year 1, ₱2,000; Year 2, ₱7,000 and Year 3, ₱6,000. So, we will find out the Profitability Index by using the formula, PV of the cash flow = FV/ (1+i) ^n
A company wanted to invest in a project which requires an initial investment of ₱10,000 and discounting rate of 10% and will yield yearly cash flows as follows: Year 1, ₱2,000; Year 2, ₱7,000 and Year 3, ₱6,000. So, we will find out the Profitability Index by using the formula, PV of the cash flow = FV/ (1+i) ^n
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 1CMA
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A company wanted to invest in a project which requires an initial investment of ₱10,000 and discounting rate of 10% and will yield yearly cash flows as follows: Year 1, ₱2,000; Year 2, ₱7,000 and Year 3, ₱6,000. So, we will find out the Profitability Index by using the formula, PV of the cash flow = FV/ (1+i) ^n.
- Calculate PV of the cash flow for Year 1 of investment.
-Calculate PV of the cash flow for Year 2 of investment.
-Calculate PV of the cash flow for Year 3 of investment.
-How much is the total PV of future cash flow of the investment?
-Find the Profitability Index of the investment.
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