The present value of future cash flows is $2,000, and the initial cost is $1,100. The Profitability Index (PI) is ____________?

Question

Accepted Answer

1.82 - The formula for Profitability Index (PI) is:
PI=Present Value of Future Cash FlowsInitial InvestmentPI = \dfrac{	ext{Present Value of Future Cash Flows}}{	ext{Initial Investment}}PI=Initial InvestmentPresent Value of Future Cash Flows
So,
PI=2,0001,100=1.82PI = \dfrac{2,000}{1,100} = 1.82PI=1,1002,000=1.82
A PI greater than 1 indicates a profitable project.

MCQ Detailed View

The present value of future cash flows is $2,000, and the initial cost is $1,100. The Profitability Index (PI) is ____________?

Detailed Explanation

Discussion

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MCQ Detailed View

The present value of future cash flows is $2,000, and the initial cost is $1,100. The Profitability Index (PI) is ____________?

Detailed Explanation

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Discussion

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In cash flow analysis, two projects are compared using a common life approach, which is classified as…

In capital budgeting, the Internal Rate of Return (IRR) of a project is classified as its ____________?…

In evaluating independent projects, the results of Internal Rate of Return (IRR) and Net Present Value…