The management of Leitheiser Corporation is considering a project that would require an initial investment of $44,000. No other cash outflows would be required. The present value of the cash inflows would be $59,330. The profitability index of the project is closest to (Ignore income taxes.):

Question

Quizplus · Accepted Answer

Profitability index is calculated by dividing the present value of cash inflows by the initial investment.
Profitability index = (Present value of cash inflows / Initial investment)
Profitability index = ($59,330 / $44,000)
Profitability index = 1.35

Therefore, the profitability index of the project is closest to 1.35, which means the project is expected to generate a return greater than the initial investment and is a good investment for the company. So, the best choice for the company is to invest in the project.

The Management of Leitheiser Corporation Is Considering a Project That