Compute the PI statistic for Project Z if the appropriate co

Compute the PI statistic for Project Z if the appropriate cost of capital is 6 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Solution

Year

cash flow

sum of present value of cash flow = cash flow/(1+r)^n r= 6%

0

1500

1500

1

450

424.5283

2

580

516.1979

3

750

629.7145

4

400

316.8375

5

200

149.4516

sum of present value of cash inflow

2036.73

cash outflow

1500

PI = sum of present value of cash inflow/cash outflow

2036.73/1500

1.36

Project should be accepted as it is greater than 1