The cost of a project is Tk. 50,000 and it generates cash inflows of Tk. 20,000, Tk. 15,000, Tk. 25,000, and Tk. 10,000 over four years. Using the present value index method, appraise the profitability of the proposed investment, assuming a 10% rate of discount.

To determine the profitability of the project using the present value index method, we first need to calculate the present value of the cash inflows. 1. Cash inflows: - Year 1: Tk. 20,000 - Year 2: Tk. 15,000 - Year 3: Tk. 25,000 - Year 4: Tk. 10,000 2. Present value (PV) calculation for each year at a discount rate of 10%: - Year 1: PV = 20,000 / (1 + 0.10)^1 = 20,000 / 1.10 = 18,181.82 - Year 2: PV = 15,000 / (1 + 0.10)^2 = 15,000 / 1.21 = 12,396.69 - Year 3: PV = 25,000 / (1 + 0.10)^3 = 25,000 / 1.331 = 18,796.14 - Year 4: PV = 10,000 / (1 + 0.10)^4 = 10,000 / 1.4641 = 6, Frage. 3. Total present value of cash inflows: = 18,181.82 + 12,396.69 + 18,796.14 + 6,157.53 = 55,532.18 4. Present Value Index (PVI): PVI = Total Present Value of Inflows / Initial Investment = 55,532.18 / 50,000 = 1.1106 A PVI greater than 1 indicates that the investment is profitable. Hence, the investment is considered profitable.