Compute the PI statistic for Project Q if the appropriate co

Compute the PI statistic for Project Q if the appropriate cost of capital is 12 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Solution

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

=3650/1.12+4480/1.12^2+1820/1.12^3+2450/1.12^4

=$9682.816486

NPV=Present value of inflows-Present value of outflows

=$9682.816486-$11600

=($1917.183514)

PI=NPV/Present value of outflows

=(1917.183514)/11600

=(0.17)(Approx) or (16.52)%(Approx)(Negative)

Hence since PI is negative;project must be rejected.