Question

What is the profitability index for an investment with the following cash flows: -46,500; 12,200; 38,400; 6,300, given a 14.5 percent required return?

Group of answer choices 0.949 0.992 1.021 1.035 1.093

Answer #1

Whenever npv is greater than zero we get profitability index more than one. When npv is less than zero, we get profitability index less than one.

The formula for profitability index is

(1+(npv/initial investment))

The initial investment used in formula above is just the number and we do not take it as negative.

The next step is to calculate npv

Npv= -46500 + 12200/(1.145) + 38400/(1.145^2) + 6300/(1.145^3)

Thus npv = -2358.06

Now the initial investment is 46500. We apply the formula for profitability index

(1+(-2358.06/46500)) = 0.949

Thus first option of 0.949 is correct

The rate of return a company is required to earn on any
investment in order to maintain the market value of its stock.
Select one:
a. internal rate of return
b. gross profit margin
c. cost of capital
d. net present value
You are given the following cash flows. If you assume a 14.5
percent required return, what is the profitability index?
Year 0 -$46,500
Year 1 $12,200
Year 2 $38,400
Year 3 $11,300
Select one:
a. 0.94
b. 0.98...

What is the profitability index of a project with the following
cash flows if the discount rate is 10 percent? Year CFs 0 -802 1
761 2 497 3 376

An independent project has a net investment of $270,000, and
generates net cash flows of $92,000 for 5 years. The required rate
of return in 10%. Compute the Profitability index.
Group of answer choices
1.87
1.07
1.43
1.29

What is the profitability index for the following set of cash
flows if the relevant discount rate is 10 percent? What if the
discount rate is 15 percent? If it is 22 percent? Year Cash
Flow
0 -16,700
1-9,700
2 -7,800
3 - 4,300

Based on the profitability index (PI) rule, should a project
with the following cash flows be accepted if the discount rate is
8%? Why Year or why not? Cash Flow $18,600 S10,000 I$7,300 I$3,700
2 yes,because the Pl is 1.008 yes; because the Pl is 0.992. yes;
because the Pl is 0.999 no; because the Pl is 1.008 no because the
Pl is 0,992

Calculate the profitability index for the cash flows provided in
the table below.? Note: The negative cash flow for year 0 is the
initial investment for the project. Assume a required rate of
return of? 9.00%
Year 0,1,2,3
Cash Flow -$90,000, ?$32,000, ?$32,000, ?$32,000

Consider the following
cash flows for two mutually exclusive capital investment projects.
The required rate of return is 16%. Use this information for the
next 3 questions.
Year Project A Cash
Flow Project B Cash
Flow
0
($50,000)
($20,000)
1
15,000
6,000
2
15,000
6,000
3
15,000
6,000
4
13,500
5,400
5
13,500
5,400
6
6,750
5,400
What is the
profitability index of project B?
Group of answer choices
1.09
1.01
.94
1.06
1.03
then calculate the net present...

Based on the profitability index rule, should a project with the
following cash flows be accepted if the discount rate is 15
percent? Why or why not? (i.e. Calculate the profitability index
(PI) and explain why the project should or should not be
accepted.)
Year: 0,1,2,3
Cash Flow: -32100, 11,800, 0, 22,600

Which one is an incorrect statement?
Group of answer choices
Profitability index ranking is better than NPV ranking in
capital rationing
Profitability index is a ratio of PV of Future Cash Flows and
Investment
Ranking of projects by profitability index is similar to that of
NPV
Profitability index value is always more than 1 for positive NPV
projects

Find the profitability index (PI) for the following series of
future cash flows, assuming the company’s cost of capital is 14.20
percent. The initial outlay is $495,936.
Year 1: $148,027
Year 2: $167,396
Year 3: $164,126
Year 4: $172,109
Year 5: $149,333
Round the answer to two decimal places.

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