A company has a minimum required rate of return of 9%. It is considering investi

Question

A company has a minimum required rate of return of 9%. It is considering investing in a project that costs $75,000 and is expected to generate cash inflows of $30,000 at the end of each year for 3 years. The profitability index for this project is Question 49 options: 1.20 .99 1.00 1.01 A company has a minimum required rate of return of 9%. It is considering investing in a project that costs $75,000 and is expected to generate cash inflows of $30,000 at the end of each year for 3 years. The profitability index for this project is A company has a minimum required rate of return of 9%. It is considering investing in a project that costs $75,000 and is expected to generate cash inflows of $30,000 at the end of each year for 3 years. The profitability index for this project is 1.20 .99 1.00 1.01 1.20 .99 1.00 1.01 1.20 .99 1.00 1.01

Explanation / Answer

Hi,

Please find the answer as follows:

PI = Present Value of Cash Inflows/Initial Investment

Present Value of Cash Inflows = 30000/(1+.09)^1 + 30000/(1+.09)^2 + 30000/(1+.09)^3 = 75938.84

PI = 75938.84/75000 =- 1.01

Option D (1.01) is correct.

Thanks.

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