Calculate the profitability index for a project that has a net present value equal to -$10,000. The project's net investment is $20,000, and the firm has a 40 percent marginal tax rate.
A) -0.5
B) 0
C) 0.8
D) None of these are correct

Question

Quizplus · Accepted Answer

The profitability index is calculated as (Net Present Value + Net Investment) / Net Investment. However, the given information and the formula do not directly apply to calculating the profitability index in a way that would result in any of the provided options. The profitability index formula typically is (Net Present Value + Initial Investment) / Initial Investment, but with a negative NPV, the formula doesn't yield a straightforward answer as provided in the options. The question seems to misunderstand the application of the profitability index or the provided options do not match the expected outcome based on the standard calculation.

Calculate the Profitability Index for a Project That Has a Net