One of the draw backs of the profitablity index as a criteria for judging whether to accept a capital investment project is that
1 answer:
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Answer:
Given:
Amount = $5000
Tenure = 5 years.
Future value =
where
n is number of periods
r is rate per period.
(a) 6% compounded annually.
Interest is compounded annually
No of periods in 5 years = 5
Future value = 5000 = 5000 × 1.33823 = $6691.15
(b) 8% compounded annually
Interest is compounded annually
No of periods in 5 years = 5
Future value =5000 = 5000×1.46933 = 7346.65
(c) 10% compounded annually
Interest is compounded annually
No of periods in 5 years = 5
Future value = 5000 = 5000×1.61051 = $8052.55
(d) 10% compounded semiannually
Interest is compounded semiannually
No of periods in 5 years is 5*2 = 10
Rate per period = 10÷2 = 5%
Future value =5000 = 5000×1.62889 = $8144.45
(e) 10% compounded quarterly
Interest is compounded annually
∴No of periods in 5 years = 5×4 = 20
Rate per period = 10÷4 = 2.5
Future value = 5000 = 5000×1.63862 = $8193.10