Question

A project's Profitability Index is .85 and its investment value of $250,000. Given this information, determine its NPV.

		-$12,500
		-$5,000
		-$37,500
		$12,500

Your accountant suspects a mistake in the computation of the payables period, which has been reported at 54.75 days. Calculate the correct payables period, given the following: annual sales = $1,200,000, annual cost of goods sold = $700,000, average accounts payable = $105,000.

		179.58 days
		212.92 days
		31.94 days
		54.75 days

Answer 1

Answer : Correct Option is -$37500

Reason :

Profitability Index = Present Value of Cash Inflow / Present Value of Cash Outflow

0.85 = Present Value of Cash Inflow / 250,000

==> Present value of Cash Inflow = 0.85 * 250,000

= 212500

Net Present Value = Present Value of Cash Inflow - Present Value of Cash Outfow

= 212500 - 250000

= ($-37500)

Answer : Correct Option is 54.75 days

Reason :

Calculation of Payable period = Average Accounts payable / (Cost of Goods sold / 365)

= 105,000 / (700000 / 365)

= 105000 / 1917.80821917

= 54.75 days