What is the profitability index for an investment with the following cash flows given a 14.5 percent required return?
A)0.94
B)0.98
C)1.02
D)1.06
E)1.11

Question

What is the profitability index for an investment with the following cash flows given a 14.5 percent required return? 
A)0.94 
B)0.98 
C)1.02 
D)1.06 
E)1.11

Quizplus · Accepted Answer

To calculate the profitability index, we need to divide the present value of future cash flows by the initial investment. Using a financial calculator, we can find the present value of future cash flows to be $51,160.36. The initial investment is $50,000. Therefore, the profitability index is $51,160.36/$50,000 = 1.02. A profitability index greater than 1 indicates that the investment is expected to be profitable, so C) 1.02 is the best choice.

What Is the Profitability Index for an Investment with the Following