POD has a project with the following cash flows Year Cash Fl

POD has a project with the following cash flows:

Year Cash Flows
0 ?$247,000
1 147,200
2 164,700
3 129,800

The required return is 8.5 percent. What is the profitability index for this project?

1.273

1.527

.655

.819

1.400

Solution

Profitability index = Present vaue of cash inflows / Initial investment

Present value of cash inflows = 147,200 / ( 1 + 0.085)¹ + 164,700 / ( 1 + 0.085)² + 129,800 / ( 1 + 0.085)³  

Present value of cash inflows = 377,194.9597

Profitability index = 377,194.9597 / 247,000

Profitability index = 1.527