Question

What is the profitability index of a project that costs $60,000 today and is expected to generate annual cash inflows of $10,000 for the next 8 years, followed by a final inflow of $12,000 in year 9? Cost of capital is 13%.

a) 0.80 b) 0.87 c) 0.94 d) 1.01 e) 1.10

Answer 1

Ans b) 0.87

The profitability index of a project that costs $60,000 today and is expected to generate annual cash inflows of $10,000 for the next 8 years, followed by a final inflow of $12,000 in year 9 is 0.87