Question

If a project has a cost of $5,000 and a profitability index of 1.4, then ____...

If a project has a cost of $5,000 and a profitability index of 1.4, then

____

Its cash inflows are $7,000

The present value of its cash inflows is $3,000

Its IRR is 20%

Its NPV is $2,000

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Answer #1
Profitablity index= 1.4
Present value of cash outflow= $5000
Present value of cash inflow= Profitability index* present value of cash outflows
                                                         = 1.4*5000= $7000
NPV= Present value of cash inflows- presnt value of cash outflows
        = 7000-5000= 2000
So correct answer is Its NPV is $2000
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