A project with a profitability index of 1.156 also has net cash flows with a present value of $69,360. The project's internal rate of return was 10%. The initial investment was
A) $66,000.
B) $80,180.
C) $60,000.
D) $62,424.

Question

Quizplus · Accepted Answer

The profitability index is calculated as the present value of future cash flows divided by the initial investment. Given a profitability index of 1.156 and present value of cash flows of $69,360, the initial investment can be found by dividing the present value by the profitability index: $69,360 / 1.156 = $60,000.

A Project with a Profitability Index of 1