What is the profitability index for an investment with the f

What is the profitability index for an investment with the following cash flows given a 6 percent required return?

1.38

0.72

1.06

0.81

1.23

Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

15700/1.06+18000/1.06^2+17400/1.06^3

=$45440.6322

PI=Present value of inflows/Present value of outflows

=$45440.6322/$37000

which is equal to

=1.23(Approx).