Hey!
The PI is calculated as PF of future cash flows divided by intial cash flow.
And the future cash fows have to be after-tax right?
If we have an intial investment of 73000$, and after-tax cash flow of 14,000$ for five years without any salvage value, given the cost of equity of 10% and the weighted cost of capital of 7%, what would be the PI?
I chose to use the weighted cost of capital of 7% since the cost of equity doesn’t take into account the cost of debt.
So I have the PV of future cash flows as C01=14000, F01=5, I=7, cpt PV=57402.76$.
PI=57402.76/73000=0.786.
Are all my calculations correct?
Thx!