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Homework answers / question archive / You are considering a project with an initial cost of $62,260 and annual cash inflows of $11,455 in perpetuity
You are considering a project with an initial cost of $62,260 and annual cash inflows of $11,455 in perpetuity. What discount rate, when applied to this project, will result in a profitability index of 1.00?
Initial investment = $ 62260
Project cash inflow = $ 11455
Profitability index "PI" = 1
Profitability index "PI"= ((present value of cash inflows) ÷ ( Initial investment))
Present value of perpetuity = ((cash inflows) ÷ (discount rate))
PI = ((11455 ÷ discount rate) ÷ (62260))
(1 × (62260))= (11455 ÷ (discount rate))
discount rate = (11455 ÷ 62260)
discount rate = 18.398651%
