Quicksilver Creations is evaluating a project that would require an initial investment of $34,000. The present value of the net cash inflows associated with this project would be $40,800. The profitability index for this project would be closest to

Question

Quizplus · Accepted Answer

Profitability index is calculated by dividing the present value of net cash inflows by the initial investment. 
Profitability index = PV of net cash inflows / Initial investment
= 40,800 / 34,000
= 1.20
Therefore, the profitability index for the project is 1.20. The best choice is option B.

Quicksilver Creations Is Evaluating a Project That Would Require an Initial