A project requires an initial investment of $200,000 and has a project profitability index of 0.250.The present value of the future cash inflows from this investment is:

Question

Quizplus · Accepted Answer

Project profitability index = Net present value of the project ÷ Investment required
Project profitability index = (Present value of the future cash inflows - Investment required) ÷ Investment required
0.250 = (Present value of the future cash inflows - $200,000) ÷ $200,000
Present value of the future cash inflows - $200,000 = 0.250 × $200,000
Present value of the future cash inflows = (0.250 × $200,000) + $200,000
Present value of the future cash inflows = $50,000 + $200,000 = $250,000

A Project Requires an Initial Investment of $200,000 and Has