Asked by Tyasia Lynah on May 14, 2024
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(Ignore income taxes in this problem.) The management of Leitheiser Corporation is considering a project that would require an initial investment of $51,000.No other cash outflows would be required.The present value of the cash inflows would be $57,630.The profitability index of the project is closest to:
A) 1.13
B) 0.87
C) 0.13
D) 0.12
Profitability Index
A financial tool used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.
Present Value
The current worth of a future sum of money or stream of cash flows, given a specific rate of return.
Cash Inflows
Money received by a business, typically from sales, investments, financing, and other business activities.
- Master the technique of appraising investment projects utilizing the profitability index.
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Learning Objectives
- Master the technique of appraising investment projects utilizing the profitability index.