A project has an initial cost of $125,000 and generates a present value of net cash inflows of $150,000.What is the project's profitability index?

Question

Quizplus · Accepted Answer

Profitability index is calculated as the present value of net cash inflows divided by the initial cost. Thus, the profitability index in this case is 150,000/125,000 which equals 1.20. A profitability index greater than 1 indicates that the project is a good investment. Choice B is the correct answer.

A Project Has an Initial Cost of $125,000 and Generates