What is the profitability index of a project that has a current cost of $100,000 and expected cash flows of $50,000 at the end of each of the next 7 years if the cost of capital is 20%?
A) 0.001
B) 0.018
C) 1.80
D) 1.18
E) 1.25

Question

Quizplus · Accepted Answer

PI = 11ea7fdb_fbea_40c8_a768_b95e8ad119c7_TB2902_11 PV(Inflows) = PMT × 11ea7fdb_fbea_40c9_a768_e31c8dbc0a0d_TB2902_11 PV(Inflows) = 50,000 × 11ea7fdb_fbea_40ca_a768_1bb431bc14c1_TB2902_11 = $180,229.59
Using a financial calculator:
N = 7, I/Y = 20, PMT = -50,000, FV = 0, cpt PV = $180,229.59
PI = 11ea7fdb_fbea_40cb_a768_21cf6fb940c8_TB2902_11 = 1.80

What Is the Profitability Index of a Project That Has