The following information is available for a potential capital investment. Initial investment $80,000, Net annual cash...

The following information is available for a potential capital investment.

Initial investment $80,000, Net annual cash flow 14,820, Net present value 18,112 Useful life 10 years the potential investment’s profitability index (rounded to two decimals) is:

(a) 5.40.

(b) 1.23.

(c) 1.19.

(d) 1.40.

Expert Solution

Answer:

Profitability index   =   1 + Net present value /( Initial investment )
                                        =    1 + $18,112 / $80,000
                                        =    1 + 0.2264
                                        =     1.23

Profitability index = 1.23

Option (b) is correct

ekkarill92 answered 2 years ago

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