The following details are provided by Doppler Systems: Calculate the profitability index for Project A.

Question

The following details are provided by Doppler Systems:  Calculate the profitability index for Project A.

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of all cash inflows by the initial investment. Using the given details and a financial calculator, the present value of all cash inflows is calculated to be $6,814.10 and the initial investment is $5,000. Thus, the profitability index is calculated to be 1.36 (6,814.10/5,000). A profitability index greater than 1 indicates that the project is profitable and investing in it would be a good decision. Therefore, the best choice is option C.

The Following Details Are Provided by Doppler Systems: Calculate