Question

Initial Outlay -$5,000 Year 1 $3,000 Year 2 $3,500 Year 3 $3,200 Year 4 $2,800 Year 5 $2,500. a. What is the PI if the discount rate is 20%?b. What is the NPV if the discount rate is 20%? Round to the second decimal place. Type only numbers without any unit ($, %, etc.) If there are multiple answers, then type NA.c. What is the IRR if the discount rate is 20%? Answer in the percent format. Round to the hundredth decimal place. Type only numbers without any unit ($, %, etc.)d. What is the EAA if the discount rate is 20%? Round to the penny. Type only numbers without any unit ($, %, etc.)

Answer 1

a. What is the PI if the discount rate is 20%?

profitability index = present value of cash flows / initial outlay

PI = $9,137.41 / $5,000 = 1.83

b. What is the NPV if the discount rate is 20%?

NPV = -$5,000 + $9,137.41 = $4,137.41

c. What is the IRR if the discount rate is 20%?

the discount rate is irrelevant when you are calculating the IRR, since the IRR is the discussion rte at which the NPV = $0

IRR = 55.23%

Step-by-step explanation:

Initial Outlay -$5,000

Year 1 $3,000

Year 2 $3,500

Year 3 $3,200

Year 4 $2,800

Year 5 $2,500.