The management of Leitheiser Corporation is considering a project that would require an initial investment of $51,000. No other cash outflows would be required. The present value of the cash inflows would be $57,630. The profitability index of the project is closest to (Ignore income taxes.):

Question

Quizplus · Accepted Answer

Profitability index (PI) = present value of cash inflows / initial investment
PI = $57,630 / $51,000
PI = 1.13

Therefore, the best choice is A. The profitability index of the project is 1.13, indicating that for every $1 invested, the project will generate $1.13 in present value of cash inflows. This suggests that the project is profitable and should be considered by the management of Leitheiser Corporation.

The Management of Leitheiser Corporation Is Considering a Project That