A project has an initial cost of $100,000 and generates a present value of net cash inflows of $120,000.What is the project's profitability index?

Question

Quizplus · Accepted Answer

Profitability Index = Present Value of Net Cash Inflows / Initial Cost
Profitability Index = $120,000 / $100,000
Profitability Index = 1.20
Since the profitability index is greater than 1, the project will generate positive net present value and is considered a good investment. Choice B is the correct answer as it represents the calculated profitability index.

A Project Has an Initial Cost of $100,000 and Generates