The Davis Corporation is considering an investment in a project that generates a profitability index of 1.3.The present value of the cash inflows on the project is $44,000.What is the net present value of this project?

Question

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of the cash inflows by the initial investment. In this case, the profitability index is 1.3, which means that the present value of the cash inflows is 1.3 times the initial investment. The net present value is the difference between the present value of the cash inflows and the initial investment. In this case, the net present value is $44,000 - $33,846 = $10,154.

The Davis Corporation Is Considering an Investment in a Project