What is the profitability index of an investment with cash flows in years 0 thru 4 of -340,120,130,153,and 166,respectively,and a discount rate of 16%?
A).15
B).22
C).35
D).42

Question

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of the future cash flows by the initial investment. In this case, the present value of the future cash flows is $153.60, and the initial investment is $340. Therefore, the profitability index is 153.60 / 340 = 0.45.

What Is the Profitability Index of an Investment with Cash