A firm is reviewing a project that has an initial cost of $71,000.The project will produce annual cash inflows,starting with year 1,of $8,000,$13,400,$18,600,$33,100,and finally in year 5,$37,900.What is the profitability index if the discount rate is 11 percent?
A)0.92
B)0.98
C)1.02
D)1.07
E)1.12

Question

Quizplus · Accepted Answer

The profitability index (PI) is calculated by dividing the present value of future cash inflows by the initial investment. Using a discount rate of 11%, the present value of the cash inflows is calculated and then divided by the initial cost of $71,000. The PI is approximately 1.07.

A Firm Is Reviewing a Project That Has an Initial