Consider a project with an initial cost Co. Thereafter, the projet has three cashflows C1,C2, and C3 in years 1 to 3. The required rate of return of the project is X.
(A) If the profitability index (PI) of the project is 1.0. /what do you know about the project's net present value (NPV) and its internal rate of return (IRR)? show work.
(B) Suppose we define the 'NPV Index' as the ratio of NPV to initial cost. What is the relationship between this index and the profitability index (PI)? You can use some numbers and calucalate the 'NPV Index' and the PI if it helps to solve this.