Adam's Manufacturing has the following information available regarding one of the projects it is considering:
$\begin{array}{lr}
\text { Initial investment} &\$500000\
\text { Net present value } &\$80000\
\end{array}$

The profitability index of this project is:

Question

Adam's Manufacturing has the following information available regarding one of the projects it is considering:
$\begin{array}{lr}
  \text {  Initial investment} &\$500000\
 \text { Net present value } &\$80000\
\end{array}$

The profitability index of this project is:

Quizplus · Accepted Answer

The profitability index is calculated by taking the present value of future cash flows divided by the initial investment. A profitability index greater than 1 indicates that the project is expected to be profitable. In this case, the profitability index is 1.16, meaning that the present value of future cash flows is 16% greater than the initial investment. Therefore, choosing this project would be a good decision for Adam's Manufacturing.

Adam's Manufacturing Has the Following Information Available Regarding One of the Projects