We calculate the profitability index of a capital-budgeting proposal by
A)multiplying the IRR by the cost of capital.
B)dividing the present value of the annual after-tax cash flows by the cost of capital.
C)dividing the present value of the annual after-tax cash flows by the cost of the project.
D)multiplying the cash inflow by the IRR.

Question

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of the annual after-tax cash flows by the cost of the project. This index helps in determining the value created per unit of investment.

We Calculate the Profitability Index of a Capital-Budgeting Proposal by