If a project has an initial cost of $50,000.00 and no other costs throughout the life of the project, what is the PI for the project given the NPV is $3,620.00?

Question

Quizplus · Accepted Answer

The PI (Profitability Index) formula is:
PI = PV of Future Cash Flows / Initial Investment

Since there are no other costs throughout the life of the project, the PV of future cash flows is simply the NPV ($3,620.00). 
Therefore, PI = $3,620.00 / $50,000.00 = 0.072 or 1.072 (rounded to three decimal places).

Option B is the correct answer.

If a Project Has an Initial Cost of $50,000