Copper Creations is evaluating a project that would require an initial investment of $36,000.The present value of the net cash inflows associated with this project would be $43,920.The profitability index for this project would be closest to:

Question

Quizplus · Accepted Answer

Profitability index (PI) is calculated by dividing the present value of net cash inflows by the initial investment.
PI = Present value of net cash inflows / Initial investment

In this scenario, the present value of net cash inflows is $43,920 and the initial investment is $36,000.
PI = $43,920 / $36,000
PI = 1.22

Therefore, the profitability index for this project is closest to 1.22, and the best choice is C. This means that for every $1 invested, the project will return $1.22 in present value of net cash inflows.

Copper Creations Is Evaluating a Project That Would Require an Initial